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) March 2022 $150-$153 in-the-money vertical Bear Put spread at $2.95 or best
Closing Trade
2-16-2022
expiration date: March 18, 2022
Portfolio weighting: 10%
Number of Contracts = 40 contracts
Since we added this position 18 trading days ago, the (TLT) has plunged an impressive $4.00. So, I am going to take the home run here and take profits in my short position in the bond market.
There is no point in hanging on for another month for the last five cents. Better to reduce risk and free up the cash for another position.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) March 2022 $150-$153 in-the-money vertical Bear Put spread at $2.95 or best.
As a result, you get to take home $2,200, or 22.9% in 18 trading days. Well done, and on to the next trade!
Do not enter a market order! Enter a limit order at $2.95 and if you don’t get done in a few minutes, lower your limit order to $2.90.
The long-term outlook for fixed income is absolutely awful. The next big rotation in the markets will be for tech and bonds to peak out and for financials to bounce hard off a bottom. This will result from coming major upgrades in economic growth, which analysts and strategists are wildly underestimating.
As soon as everyone gets the parts and labor they want, it is going to be off to the races. Add to that a Fed taper on monetary stimulus and interest rates will soar.
With 2022 expected to be one of the strongest years for economic growth in history, there is no chance you’ll see a major rally in the US Treasury bond market from here. The only question is how fast it will fall.
This trade is basically betting that interest rates will rise in front of the biggest borrowing in human history.
To lose money on this trade, the ten-year US Treasury yield would have to drop below 1.40% in five weeks, which is highly unlikely.
The fundamentals of this trade are very simple. The national debt rose to an eye-popping $30 trillion in 2021. In 2022, it is expected to explode to $33 trillion. The US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise and interest rates to fall 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 was a bet that the (TLT) will not rise above $150.00 by the March 18 option expiration in 40 trading days. To lose money on this position, ten-year US Treasury yields would have to plunge to 1.40% from the current 1.74%, which they won’t. Yields are more likely to go to 2.0% first.
Here are the specific trades you need to close out this position:
Sell 40 March 2022 (TLT) $153 puts at…….............…….………$18.00
Buy to cover short 40 March 2022 (TLT) $150 puts at…………$15.05
Net proceeds:………………………….…….............…..………….….....$2.95
Profit: $2.95 - $2.40 = $0.55
(40 X 100 X $0.55) = $2,200, or 22.9% in 18 trading days.
The Fat Lady is Singing for the Bond Market
If you are uncertain about 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.
