Trade Alert - (TLT) August 10, 2018 BUY

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) - BUY

BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT)September, 2018 $123-$126 in-the-money vertical BEAR PUT spread at $2.60 or best?

 

Opening Trade

8-10-2018

expiration date: September 21, 2018

Portfolio weighting: 10%

Number of Contracts = 38 contracts

I am using the 2.70 point dead cat bounce off the bottom of the US Treasury bond market (TLT) triggered by today's red-hot Consumer Price Index this morning. The July CPI came in at 2.9% a decade high.

Bonds usually sell off when they get data like this, so to see them rally makes absolutely no sense whatsoever. Clearly the crash of the Turkish Lira and the Russian Ruble are the bigger market factors today.

I also think we are seeing the move because there are already an historic number of existing short positions in the bond market and everyone is nervous.

Specifically, I am buying iShares Barclays 20+ Year Treasury Bond Fund (TLT) September, 2018 $123-$126 in-the-money vertical BEAR PUT spread at $2.60 or best.

So, just put a bid in the middle market and if nothing gets done keep raising it by ten cents until you are. That is the only way to buy a position in these illiquid markets.

This is a bet that the (TLT) will not rise above $123 by the September 21 options expiration days in 32 trading days.

For this to happen, the ten-year Treasury bond yield would have to drop from the current 2.88% to below 2.72%. With the Fed about to raise interest rates by another 25 basis points there is no way that is going to happen,

With the Mad Hedge market Timing Index flashing an "extreme buy" at 62, to is time for "RISK OFF."

The fundamental reasons for this trade are growing by the day.

1) US economic growth is strong.

2) The Fed is selling $6 billion a month, or $200 million a day, worth of paper in its QE unwind.

3) Tax cuts are providing further stimulus for the US economy.

4) Exploding deficits, expected to reach $1 trillion this year, will eventually crown borrowers out of the market, forcing them to pay higher interest rates.

5) We also now have evidence that China has started to dump it's massive $1 trillion in US Treasury bond holdings.

All are HUGELY bond negative.

That should take bonds down to new 2018 lows. What we could be seeing here is the setting up for the perfect head and shoulders top of the (TLT) for 2018.

Don't pay more than $2.70 for this position or you'll be chasing.

If you don't do options, this would be a great level to scale into a long in the ProShares Ultra Short 20+ Treasury Bond Fund (TBT), a bet that bonds will fall.

Here are the specific trades you need to execute this position:

Buy 38 September, 2018 (TLT) $126 puts at......................$5.70

Sell short 38 September, 2018 (TLT) $123 puts at.............$3.10
Net Cost:..................................................................$2.60

Potential Profit: $3.00 - $2.60 = $0.40

(38 X 100 X $0.40) = $1,520 or 15.38% in 29 trading days.

 

 

To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.