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) March 2023 $92-$95 in-the-money vertical Bull Call debit spread at $2.60 or best
Opening Trade
2-21-2023
expiration date: March 17, 2023
Portfolio weighting: 10%
Number of Contracts = 40 contracts
After a one-month vacation from the bond market, I am back!
Rising fears that the House of Representatives will impose a US government debt default and government shutdown this summer have completely unwound the 2023 bond market rally.
As a result, ten-year US Treasury yields have soared from 3.30% to 4.00%, bringing the prospects of an economic recovery to a juddering halt.
This is all now in the price and means we can add bond call spreads at the subterranean strike prices that we saw last October.
The charts are showing a textbook double top and a lower low usually follows. The (TLT) has cratered $10 in only three weeks.
Buying bonds now is like lending money to someone even after they told you they won’t repay.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) March 2023 $92-$95 in-the-money vertical Bull Call spread at $2.60 or best.
Don’t pay more than $2.75 or you’ll be chasing on a risk/reward basis.
If you don’t trade options, just buy the (TLT) outright. I am looking for a possible 20% gain in the second half of this year after the debt crisis is resolved.
I am looking for the Fed to raise interest rates by 0.25% at the March 22 meeting. After that, rates will flatline for three months. By June, economic weakness will be so obvious that a dramatic rate-cutting policy will ensue.
And this won’t be just any old easy money policy. I expect a 0.75% rate CUT at the July 26 meeting and for the Fed to continue cutting at a 0.75% rate at every meeting until the economy stabilizes.
In addition, the Fed will end its quantitative tightening program by June, which is currently sucking $90 billion a month out of the economy. That’s a lot of bond selling that suddenly ends. Bonds will soar.
I’m looking for $120 in the (TLT) sometime in 2023, with a possible stretch to $130. Use every five-point dip to load up on shares in the ETF, calls, call spreads, and one-year LEAPS. This trade is going to work fast. It is the low-hanging fruit of 2023.
Kaching!
The only way to lose money on this position is if the US economy absolutely catches on fire and sends interest rates soaring in the next months. As we are on the verge of a possible mild recession, I highly doubt this is going to happen.
This is a bet that the (TLT) will not fall below $95.00 by the March 17 option expiration in 19 trading days.
Here are the specific trades you need to execute this position:
Buy 40 March 2023 (TLT) $92 calls at………….………$9.00
Sell short 40 March 2023 (TLT) $95 calls at…….……$6.40
Net Cost:………………………….………..…………......….....$2.60
Potential Profit: $3.00 - $2.60 = $0.40
(40 X 100 X $0.40) = $1,600, or 15.38% in 19 trading days.
It’s now the Opening Act 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.
