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 AGAIN
BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2022 $110-$113 in-the-money vertical Bull Call spread at $2.60 or best
Opening Trade
4-21-2022
expiration date: May 20, 2022
Portfolio weighting: Increase from 10% to 20%
Number of Contracts = 40 contracts
After thinking about this trade for a few minutes, I decided it was such a good idea that I am going in with a double position.
I know you must think I’m Mad sending out this trade alert to buy bonds when the (TLT) is clearly on its way to my long-term target of $110. But sending out impossible trades like this that tend to work is how I originally got my nickname of Mad.
Bonds are in free fall so I am willing to nibble on the long side.
I am therefore willing to BUY the US Treasury bond market with a very deep in-the-money vertical bull call spread with a 21-day view. This will help balance out our long/short exposure in our model trading portfolio.
The Fed likely will raise interest rates in April by 50 basis points and by the same amount again in June. This is already in the market.
We are certainly headed for a 3.00% yield for the ten-year, but not until mid-year at the earliest.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2022 $110-$113 in-the-money vertical Bull Call spread at $2.60 or best
Don’t pay more than $2.75 or you’ll be chasing on a risk/reward basis.
The long-term outlook for fixed income is absolutely awful. The next big rotation in the markets will be for tech and bonds to peak out and for 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 taper on monetary stimulus and interest rates will soar.
With 2022 expected to be one of the strongest years for economic growth in history, 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.
This trade is basically betting that interest rates will rise in front of the biggest borrowing in human history.
To lose money on this trade, the ten-year US Treasury yield would have to rise above 3.30% in four weeks, which is highly unlikely. You need to wait until yearend to see those kinds of numbers.
The fundamentals of this trade are very simple. The national debt rose to an eye-popping $30 trillion in 2021. In 2022, it is expected to explode to $33 trillion. The US Treasury demands on the bond market are going to be incredible.
This is a bet that the (TLT) will not fall below $113.00 by the May 20 options expiration in 21 trading days. Here are the specific trades you need to execute this position:
Buy 40 May 2022 (TLT) $110 calls at………….………$9.00
Sell short 40 May 2022 (TLT) $1113 calls at…………$6.40
Net Cost:………………………….………..…...……….….....$2.60
Potential Profit: $3.00 - $2.60 = $0.40
(40 X 100 X $0.40) = $1,600 or 20.00% in 21 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.
