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 2024 $82-$85 in-the-money vertical Bull Call debit spread at $2.95 or best
Closing Trade
5-6-2024
expiration date: May 17, 2024
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I am going to use the weak April Nonfarm Payroll Report out Friday to take profits on my long in the bond market. The report indicates that the economy is modestly weakening and hiring is slowing.
That has caused interest rates to fall and bond prices to rise, as I expected. Ten-year US Treasury bonds are currently yielding 4.45%, a one-month low.
With 87.5% of the profit in hand, the risk-reward of continuing with this position for 9 more days is no longer favorable.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2024 $82-$85 in-the-money vertical Bull Call debit spread at $2.95 or best.
As a result, you get to take home $1,400, or 16.00% in 19 trading days. Well done and on to the next trade.
I have largely been focusing on the noninterest rate sensitive sectors of the US economy, mostly Big Tech. The cruel fact is that over half of the US economy is getting killed by high rates, old economy capital-intensive sectors like steel, cruise lines, utilities, and REITS for commercial real estate, and regional banks. At some point, the Fed is going to HAVE to cut rates to bail out this troubled part of the economy.
We are also getting a halving in quantitative tightening that will also give bonds a boost.
We are now entering a long-term declining period for the interest rate cycle. By midyear, economic weakness will be so obvious to the Fed that a dramatic rate-cutting policy will ensue to avoid a recession.
In addition, the Fed is ending its quantitative tightening program this year, which is currently sucking $90 billion a month out of the economy. That’s a lot of bond selling that suddenly ends.
Bonds will soar.
I’m looking for $110 in the (TLT) sometime in 2024 and maybe even $120. Use every dip to load up on shares in the ETF, calls, call spreads, and one-year LEAPS. This trade is going to work fast. It is the low-hanging fruit of 2024.
Kaching!
This was a bet that the (TLT) would not fall below $85.00 by the May 17 option expiration in 27 trading days.
Here are the specific trades you need to execute this position:
Sell 40 May 2024 (TLT) $82 calls at………….……............…$8.00
Buy to cover short 40 May 2024 (TLT) $85 calls at…………$5.05
Net Proceeds:………………………….………..………….......….....$2.95
Potential Profit: $2.95 - $2.60 = $0.35
(40 X 100 X $0.35) = $1,400, or 16.00% in 19 trading days.
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.
