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) September 2022 $125-$128 in-the-money vertical Bear Put spread at $2.95 or best
Closing Trade
8-22-2022
expiration date: September 16, 2022
Portfolio weighting: 10%
Number of Contracts = 40 contracts
Since I added this position, the (TLT) has utterly collapsed, dropping an astonishing $9.00 in only nine trading days. The risk/reward of continuing for 19 more trading days is no longer favorable.
Time to take the money and run.
With the Jackson Hole meeting of central bankers this Thursday and Friday, we have an extra incentive to head for the sidelines. You never know, we might get a gift in the form of a monster bond market rally.
To lose money on this trade the ten-year US Treasury yield would have to drop from today’s 2.78% to below 2.35% in 27 trading days. Instead, rates soared to today’s 3.00%.
Treasury bonds have in fact been in a steep downtrend that began in end November.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) July 2022 $125-$128 in-the-money vertical Bear Put spread at $2.95 or best.
The only way to lose money on this position is if the US economy headed into a deep recession in five weeks. At worst, we are having a mild recession which is already fully discounted in the market and reflected in the $12.00 rally since June.
The long-term outlook for fixed income is absolutely awful. The next big rotation in the markets will be for tech and financials to bounce hard off a bottom. This will result from coming major upgrades in economic growth, which analysts and strategists are wildly underestimating.
As soon as everyone gets the parts and labor they want, it is going to be off to the races. Add to that a Fed quantitative tightening on monetary stimulus and interest rates will soar.
With 2022 the Fed on an announced path of at least 200 basis point in interest rate rises, 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.
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 $125.00 by the September 17 option expiration in 27 trading days.
Here are the specific trades you need to exit this position:
Sell 40 September (TLT) $128 puts at………..…...………$15.00
Buy to cover short 40 September (TLT) $125 puts at…$12.05
Net Proceeds:………………………….………..……..…….….....$2.95
Profit: $2.95 - $2.55 = $0.40
(40 X 100 X $0.45) = $1,600 or 15.69% in 9 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.
