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 2019 $116-$119 in-the-money vertical BULL CALL spread at $2.98 or best
Closing Trade
4-26-2019
expiration date: May 17, 2019
Portfolio weighting: 10%
Number of Contracts = 38 contracts
I am going to use the hot Q1 GDP number this morning to take profits on my long in the bond market. My screen is showing a $3.00 bid, so I’ll give you two cents to get it done.
Usually, a strong GDP print brings a bond selloff, but the (TLT) is up a half point on the news. Before the market figures out it is wrong, I am selling my position. We managed to capture newly a two-point move in three days.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2019 $116-$119 in-the-money vertical BULL CALL spread at $2.98. Buy coming out here you get to earn a nice $1,444 or 14.61% in 3 trading days.
This takes me back to a rare 100% cash position. With my Market Timing Index at a high 69, I am not inclined to chase every trade out there.
This trade worked because I believed that the battle between the president and the Fed will result in no substantial change in interest rates for the rest of 2019. Yes, the Fed has caved.
The president wants to superheat the economy on credit to game the 2020 elections. Cooler heads are prevailing at the Fed, which is focusing on the moderate 2% average growth the economy has enjoyed over the last decade. With Weekly Jobless Claims hitting a 49-year low at 196,000 last week, the threat of inflation, and therefore rate rises, could be imminent.
If you bought a small amount of (TLT) for a trade, get out. How often do you get to make two points in three days?
This was a bet that the (TLT) would not fall below $119.00 by the May 17 expiration day in 19 trading days. That would require ten-year US Treasury bonds to rise above 2.83% versus the current 2.59%. That is highly unlikely given that the Fed has indicated it won’t raise interest rates for the rest of 2019.
Here are the specific trades you need to exit this position:
Sell 38 May 2019 (TLT) $116 calls at……..............…….………$8.00
Buy to cover short 38 May 2019 (TLT) $119 calls at………….$5.02
Net Proceeds:………………………….………..............…..….….....$2.98
Profit: $2.98 - $2.60 = $0.38
(38 X 100 X $0.38) = $1,444 or 14.61% in 3 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.
