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) December 2020 $148-$151 in-the-money vertical bull call spread at $2.60 or best
Opening Trade
12-2-2020
expiration date: December 18, 2020
Portfolio weighting: 10%
Number of Contracts = 40 contracts
We have just captured a nice $6 dive in the (TLT).
However, I am not going to take profits on my existing short position, which I am inclined to run into the December 18 option expiration in 12 trading days.
Instead, I am going to add a deep in-the-money call spread, betting that even if we continue going down, it will be at a slower rate. That will enable me to double my profit on the combined position.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December 2020 $148-$151 in-the-money vertical bull call spread at $2.60 or best.
Don’t pay more than $2.75 or this is really not worth doing with such a short expiration.
If you don’t play options, just stand aside this time. The long-term trend in bond prices is down. I am just playing for a short-term oversold bounce.
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 substantially from here. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me.
This is a bet that the (TLT) will not fall below $151.00 by the December 18 option expiration in 12 trading days. To lose money on this position ten-year US Treasury yields would have to approach 1.10%, which isn’t going to happen until 2021.
Here are the specific trades you need to execute this position:
Buy 40 December 2020 (TLT) $148 calls at…….….………$8.60
Sell short 40 December 2020 (TLT) $151 calls at…………$6.00
Net Cost:………………………….……............…..………….….....$2.60
Potential Profit: $3.00 -$2.60 = $0.40
(40 X 100 X $0.40) = $1,600 or 15.38% in 12 trading days.
The Fat Lady is Singing for the Bond Market
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.
