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) August 2020 $175.00-$177.50 in-the-money vertical Bear Put spread at $2.48 or best
Closing Trade
8-13-2020
expiration date: August 21, 2020
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I love taking three-day 13% profits.
Since we added this position on Monday, the bond market has shed an impressive seven points. The risk/reward of continuing is no longer favorable.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) August 2020 $175.00-$177.50 in-the-money vertical Bear Put spread at $2.48 or best. By coming out here, you get to earn a very quick $1,160, or 13.18% in 3 trading days.
Well done, and on to the next trade!
If you can’t get this price, keep reentering it every day until you do, or run it into the August 21 option expiration in six trading days and collect the full $3.00.
The fundamentals of this trade are very simple. With the national debt already rising from a record $23 trillion to an eye-popping $30 trillion by the end of 2020, the US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise from here. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me.
If you have the ProShares Ultra Short 20 Year Plus Treasury Bond ETF (TBT), keep it. It is going much higher.
This was a bet that the (TLT) would not rise above $175.00 by the August 21 option expiration in 9 trading days. To lose money on this position ten-year US Treasury yields would have to approach 0.30%. It didn’t.
Here are the specific trades you need to exit this position:
Sell 40 August 2020 (TLT) $177.50 puts at…………....………$12.00
Buy to cover short 40 August 2020 (TLT) $175.00 puts at…$9.52
Net Proceeds:………………………….………..………….........….....$2.48
Profit: $2.48 - $2.20 = $0.28
(40 X 100 X $0.28) = $1,120, or 13.18% in 3 trading days.
The Fat Lady is Singing for the Bond Market
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 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.
