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, 2018 $124-$127 in-the-money vertical BEAR PUT spread at $2.90 or best
Closing Trade
4-19-2018
expiration date: May 18, 2018
Portfolio weighting: 10%
Number of Contracts = 40 contracts
This morning, a succession of Fed speakers have virtually guaranteed that interest rates will rise in June, followed by further hikes in September and December.
The bond market did not take kindly to these options, which are in complete free fall. Exploding American deficits really come home to roost. The administration is in the process of spending its way into the next recession.
I am therefore going to take profits in my remaining short in the US Treasury bond market by selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May, 2018 $124-$127 in-the-money vertical BEAR PUT spread at $2.90 or best.
Buy coming out here we are reaping 80% of the maximum potential profit while there is still a full month left until the next options expiration. Better to have the cash so we can sell into the next bond market rally.
No one ever got fired for taking a profit. By cashing in here you get to take home $1,600, or 16.00% in 17 trading days.
We are less than two months away from the next 25 basis point Fed interest rate hike, and the next one is really going to start to hurt.
We receive a further benefit from rising rates in that it has lit a fire under our existing longs in financial stocks.
So, just put an offer at my price and if nothing gets done keep lower it by five cent increments until you are.
This was a bet that the (TLT) would not rise above $124 by the May 18 options expiration days in 36 trading days. With This morning's print we are $5.10 below that, and the ten-year US Treasury bond yield is at a one month high of 2.92%.
The fundamental reasons for this trade are growing by the day.
1) The Global Synchronized Recovery is accelerating.
2) The Fed will start dropping on the bond market in the very near future $6 billion a month, or $200 million a day, worth of paper in its QE unwind.
3) Tax cuts will provide further stimulus for the US economy.
4) With the foreign exchange markets now laser focused on America's exploding deficits, a weak US dollar has triggered a capital flight out of the US.
5) We also now have evidence that China has started to dump it's massive $1 trillion in US Treasury bond holdings.
6) The US dollar will be the big loser in any trade war.
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.
If you have the ProShares Ultra Short 20+ Treasury Bond Fund (TBT), a bet that bonds will fall, keep it. Interest rates are going much lower. A 3% yield on the ten year is coming within range.
Here are the specific trades you need to execute this position:
Sell 40 May, 2018 (TLT) $127 puts at.........................$8.50
Buy to cover short 40 May, 2018 (TLT) $124 puts at..............$5.60
Net Proceeds:...........................................................$2.90
Profit: $2.90 - $2.50 = $0.40
(40 X 100 X $0.40) = $1,600, or 16.00% in 17 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.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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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 close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
