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) December, 2018 $121-$124 in-the-money vertical BEAR PUT spread at $2.98 or best
Closing Trade – NOT FOR NEW SUBSCRIBERS
12-13-2018
expiration date: December 21, 2018
Portfolio weighting: 10%
Number of Contracts = 38 contracts
I have to admit that when I sent out this trade alert, several close friends called to tell me that I had gone completely crazy.
However, here we are only seven trading days later, and the bond market has played out pretty much as I expected.
This morning’s weakness in the bond market is a gift, as we get to reap 95% of the maximum potential profit in this position a week before the Federal Reserve delivers its momentous decision on interest rates. In other words, it’s a great time to admire their actions from the sidelines.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December, 2018 $121-$124 in-the-money vertical BEAR PUT spread at $2.98 or best.
Buy coming out here we get to realize an instant profit of $1,444, or 14.61% in 7 trading days. In these trading conditions that counts as a home run. I’m kicking myself for not putting on a double position. Welcome to show business.
There was an out and out short covering panic in the bond market seven days ago as recession fears loomed. The Ten-year US Treasury bond yield had plunged 10 points in one day, taking it down to a six-month low at 2.89%. Yields were inverting everywhere.
The Buenos Aires G-20 summit is now viewed by the market as a complete failure with the Dow Average down a stunning 600 points. Singlehandedly, Donald Trump is bringing forward the next recession at a very rapid pace. Investors are clearly far more worried about a recession than inflation.
In order words, that was the best day to SELL bond of 2018.
This was a bet that the (TLT) will not rise above $121 by the December 21 option expiration in 16 trading days. As it stands the (TLT) is trading at $118.21.
The fundamental reasons for this trade are growing by the day.
1) Bond auctions are getting increasingly difficult to pull off. It’s just a matter of time before we get a failed auction that completely crashes the bond market. The government has to issue a staggering $1.4 trillion in bonds next year to cover massive deficit spending.
2) The Fed has already started dropping on the bond market in $6 billion a month, or $200 million a day, worth of paper in its QE unwind.
3) Tax cuts are providing further stimulus for the US economy, so is the NAFTA renewal. The economic data is running red hot.
4) We also now have evidence that China has started to dump it’s massive $1 trillion in US Treasury bond holdings, or at least boycotting new auctions.
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.
Here are the specific trades you need to execute this position:
Sell 38 December, 2018 (TLT) $124 puts at………….………$6.20
Buy to cover short 38 December, 2018 (TLT) $121 puts at……$3.22
Net Proceeds:………………………….………..………….….....$2.98
Profit: $2.98 - $2.60 = $0.38
(38 X 100 X $0.38) = $1,444 or 14.61% in 7 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.
