When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (TLT) – TAKE PROFITS
SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2021 $145-$148 in-the-money vertical Bear Put spread at $2.95 or best
Closing Trade
5-3-2021
expiration date: May 21, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I’ll take the home run on this position. With 90% of the maximum potential gain in hand, the risk/reward of continuing is no longer favorable. In any case, there are other fish to fry, other good trades to go into.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2021 $145-$148 in-the-money vertical Bear Put spread at $2.95 or best.
By coming out here, you get to take home $1,920 or 19.20% in only 11 trading days. Well done and on to the next trade!
With 2021 already of the strongest years for economic growth in history, there is no chance you’ll see a major rally in the US Treasury bond market from here. The only question is how fast it will fall.
This trade is basically betting that interest rates will rise in front of the biggest borrowing in human history.
The fundamentals of this trade are very simple. The national debt rose from a record $23 trillion to an eye-popping $28 trillion in 2020. In 2021 it is expected to explode to $32 trillion. The US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise and interest rates to fall substantially from here. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me.
This was a bet that the (TLT) would not rise above $145.00 by the May 21 option expiration in 20 trading days. To lose money on this position, ten-year US Treasury yields would have to plunge to 1.32% from the current 1.53%, which they won’t for three weeks. Pigs would have to fly first.
Here are the specific trades you need to exit this position:
Sell 40 May 2021 (TLT) $148 puts at………..............….………$8.80
Buy to cover short 40 May 2021 (TLT) $145 puts at…….……$5.85
Net Proceeds:………………….........……….………..………….….....$2.95
Profit: $2.95 - $2.50 = $0.45
(40 X 100 X $0.45) = $1,800 or 18.00% in only 11 trading days.
The Fat Lady is Singing for the Bond Market
If you are uncertain about how to execute an options spread, please watch my training video by clicking here.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.
Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
