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 2019 $124-$126 in-the-money vertical BEAR PUT spread at $1.80 or up to $1.90
Opening Trade
2-22-2019
expiration date: March 15, 2019
Portfolio weighting: 10%
Number of Contracts = 57 contracts
There isn’t much to do in the stock market her prior to the announcement of a China trade deal and with prices at five-month highs.
I am therefore going to take advantage of the one point rally in the bond market today and sell short bonds.
Therefore, I am buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) March 2019 $124-$126 in-the-money vertical BEAR PUT spread at $1.80 or best.
Don’t pay for than $1.90 or you will be chasing.
If you don’t do options, buy the ProShares UltraShort 20 Year Plus Treasury Bond ETF (TBT) outright for a quick pop.
This is a bet that the (TLT) will not rise above $124.00 by the March 15 option expiration in 15 trading days. To lose money on this position, ten-year US Treasury yields would have to drop below 2.50% 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 $1.6 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.
Here are the specific trades you need to execute this position:
Buy 57 March 2019 (TLT) $126 puts at………….………$4.40
Sell short 57 March 2019 (TLT) $124 puts at…………$2.60
Net Cost:………………………….………..………….….....$1.80
Potential Profit: $2.00 - $1.80 = $0.20
(57 X 100 X $0.20) = $1,140 or 11.11% in 15 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.