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) – STOP LOSS
SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT) August 2023 $94-$97 in-the-money vertical Bull Call spread at $1.60 or best
Closing Trade
8-3-2023
expiration date: August 18, 2023
Portfolio weighting: 10%
Number of Contracts = 40 contracts
There is a meltdown going on in the US Treasury market today thanks to Fitches’ downgrade of US debt from AAA to AA+, with the ten-year yield soaring to 4.20%. When you publicly threaten to default on US debt, as members of the US debt did months ago, downgrades are certain to come. Another rating agency did the same 12 years ago.
This is a legitimate black swan, and we have major performance to produce this year. It’s not worth running even though we have only 11 trading days until expiration. I’m therefore throwing in the towel on this position. We’ll make it back on the next trade.
The red-hot GDP print of 2.40% out last week threw further fat on the fire. Interest rates rise and bond prices fall in strong economies.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) August 2023 $94-$97 in-the-money vertical Bull Call spread at $1.60 or best.
After selling short bonds (TLT) from $180 all the way down to $91, I flipped to the long side on October 14. The next day, bonds saw their biggest rally in years, making instant millionaires out of several of my followers.
In a heartbeat, we went from super bear to hyper bull.
We are now entering a flat-line period for the interest rate cycle. By December, economic weakness will be so obvious that a dramatic rate-cutting policy will ensue.
And this won’t be just any old easy money policy. I expect a 0.75% rate CUT in the future and for the Fed to continue cutting at a 0.75% rate at every meeting until the economy stabilizes.
In addition, the Fed is ending its quantitative tightening program in June, which was sucking $90 billion a month out of the economy. That’s a lot of bond selling that suddenly ends.
There is another huge bond positive in the works. In 2022, the US budget deficit dropped at its fastest rate in history, from $3 trillion to $1.5 trillion. Reduce the supply and prices can only go up. It’s basic supply in demand.
Bonds will soar.
This was a bet that the (TLT) would not fall below $97.00 by the August 18 options expiration in 33 trading days.
Here are the specific trades you need to exit this position:
Sell 40 August 2023 (TLT) $94 calls at……….............….………$2.50
Buy to cover short 40 August 2023 (TLT) $97 calls at…………$0.90
Net Proceeds:…………………..……….....................………….….....$1.60
Loss: $2.60 - $1.60 = $1.00
(40 X 100 X $1.00) = $4,000
It’s now the Opening Act 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.
