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) May 2020 $175-$178 in-the-money vertical Bear Put spread at $2.50 or best
Opening Trade
4-28-2020
expiration date: May 15, 2020
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I am going to use today’s two-point rally in the bond market to step up my short position there.
This time, I am increasing my short position with a very short-dated play on the May options expiration.
After a seven-month hiatus, I am back trading the bond market. Since September, bonds were too boring to trade, then they became insanely volatile.
As a result, bond option volatilities are still spectacularly high, offering ample opportunities to make money with vertical bear put spreads.
After the most ferocious risk reversals in history, markets are once again probing the top end of all-time highs. So, it’s time to stick my toe back in the water.
The bond market has just seen one of the sharpest rallies in history, the United States US Treasury bond fund (TLT) yield plunging an eye-popping 179 basis points in three months. That took ten-year yields from 2.10% to 0.31%.
Suddenly, the world’s most crowded trade, long bonds, became uncrowded. There is now a massive shift underway to sell bonds and buy cheap stocks.
The fundamentals of this trade are very simple. With the national debt already rising from a record $24.3 trillion to an eye-popping $30 trillion by the end of 2010, the US Treasury demands on the bond market are going to be incredible. Debt to GDP now stands at 113% but will rocket to 147% by next year.
It is almost mathematically impossible for bond prices to rise. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me. This could be the start of the greatest short play in history.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2020 $175-$178 in-the-money vertical Bear Put spread at $2.50 or best. This gives a triple weighting in our net short in the bond market.
Don’t pay more than $2.75 or you’ll be chasing.
If you don’t do options, sell the ProShares Ultra Short 20 Year Plus Treasury Bond ETF (TBT) outright for a quick pop, which is absolute at a rock bottom level.
This is a bet that the (TLT) will not rise above $175.00 by the May 15 option expiration in 12 trading days. To lose money on this position, ten-year US Treasury yields would have to approach near 0.30%.
Here are the specific trades you need to execute this position:
Buy 40 May 2020 (TLT) $178 puts at…………..………$9.20
Sell short 40 May 2020 (TLT) $175 puts at……..……$6.70
Net Cost:…....……………………….………..………….….....$2.50
Potential Profit: $3.00 - $2.50 = $0.50
(40 X 100 X $0.50) = $2,000 or 10.00% in 12 trading days.
To see how to enter this trade in your online platform, please look at the order ticket below, 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 a Vertical Bear Put Spread” 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.
