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)January, 2019 $124-$127 in-the-money vertical BEAR PUT spread at $2.60
Opening Trade
12-19-2018
expiration date: January 18, 2019
Portfolio weighting: 10%
Number of Contracts = 38 contracts
There is an out and out short covering panic in the bond market today as the Fed decision looms which has taken prices up an incredible nine point in only seven weeks.
This is one of the most uncertain Fed meeting in 40 years and that uncertainty is priced into the options market.
The Ten-Year US Treasury bond yield has plunged 55 basis points from the 3.25% high taking it down to a six-month low at 2.80%. Yields are inverting everywhere.
In order words, this is the best day to SELL bond of 2018.
Therefore, I am buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) Janaury, 2019 $124-$127 in-the-money vertical BEAR PUT spread at $2.60.
Don’t pay for than $2.75 or you will be chasing.
If you don’t do options buy the ProShares Ultra Short 20 Year Plus Treasury Bond ETF (TBT) outright for a quick pop.
This is a bet that the (TLT) will not rise above $124 by the January 18 option expiration in 19 trading days. To lose money on this position, ten year US Treasury yields would have to drop below 2.60% very quickly. That is a bet I am willing to make.
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 $50 billion a month, or $1.6 billion 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 its massive $1 trillion in US Treasury bond holdings, or at least boycotting new auctions.
All are HUGELY bond negative.
That should take bond prices down to new 2018 lows and yields to new highs. 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:
Buy 38 January 2019 (TLT) $127 puts at………….………$6.60
Sell short 38 January 2019 (TLT) $124 puts at……$4.00
Net Cost:………………………….………..………….….....$2.60
Potential Profit: $3.00 - $2.60 = $0.40
(38 X 100 X $0.40) = $1,520 or 15.38% in 19 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.
