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-EXPIRATION
Expiration of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) February 2019 $124-$126 in-the-money vertical BEAR PUT spread at $2.00
Closing Trade
2-15-2019
expiration date: February 15, 2019
Portfolio weighting: 10%
Number of Contracts = 57 contracts
Unless the bond market (TLT) rockets by a full two points in the next trading hour, my short position there is going to expire at its maximum profit point.
Specifically, our position in the iShares Barclays 20+ Year Treasury Bond Fund (TLT) February 2019 $124-$126 in-the-money vertical BEAR PUT spread at will expire worth $2.00.
With this trade, you were able to earn $1,425, or 20.00% on your capital in 10 trading days. That annualizes out at 730% per annum with very limited risk. Welcome to the hedge fund business!
There’s nothing you need to do here. Your brokers should automatically use your long put position to cover your short put position over the weekend. The cash should appear in your trading account on Tuesday morning and the margin freed up. Well done and on to the next trade.
This was a bet that the (TLT) would not rise above $124.00 by the February 15 option expiration in 10 trading days. To lose money on this position, ten-year US Treasury yields would have to drop below 2.50% very quickly. That was a bet I was willing to make.
With gold (GLD) on a tear here, my last remaining position, the performance of the Mad Hedge Fund Trader has blasted through to another new all-time high. We now stand at +3.16% for February and +12.64% so far in 2019.
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 $1.6 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. A trade deal with China will crush this market.
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.
5) Capping US interest rates, for the time being, will knock the wind out of the US dollar, scaring away the foreign buyers who take down about half of all US Treasury auctions.
All are HUGELY bond negative.
That should take bond prices down to new 2019 lows and yields to new highs.
Profit: $2.00 - $1.75 = $0.25
(57 X 100 X $0.25) = $1,425 or 20.00% in 10 trading days.
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.
