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) February 2021 $158-$161 in-the-money vertical Bear Put spread at $2.95 or best
Closing Trade
2-3-2021
expiration date: February 19, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
We are just touching new lows for the year in the (TLT). So I am going to take the home run here and cover my last short in the bond market. I’ll be back in on the next five-point rally. In any case, there are far better trades to use this cash for.
I am therefore selling iShares Barclays 20+ Year Treasury Bond Fund (TLT) February 2021 $158-$161 in-the-money vertical Bear Put spread at $2.95 or best. If you can’t get my price, lower your offer by a couple of pennies.
By coming out here, you get to earn $1,400 or 16.00% in 7 trading days. Well done, and on to the next trade. With 87.5% of the maximum potential profit in hand, the risk/reward of continuing 12 more trading days until the February 19 option expiration is no longer favorable.
The memo is out now. Bonds have already dropped $9 in 2021 and the worst is yet to come. This is becoming a one-way trade. Therefore, I will be selling even small rallies, like the one we just saw.
With 2021 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.
The fundamentals of this trade are very simple. The national debt rose from a record $23 trillion to an eye-popping $28 trillion in 2020. In 2021, it is expected to explode to $32 trillion. 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 was a bet that the (TLT) will not rise above $158.00 by the February 19 option expiration in 18 trading days. To lose money on this position, ten-year US Treasury yields would have to plunge to 0.85% from the current 1.04%, which they won’t in a month.
Here are the specific trades you need to exit this position:
Sell 40 February 2021 (TLT) $161 puts at…………........………$11.00
Buy to cover short 40 February 2021 (TLT) $158 puts at……$8.05
Net Proceeds:………………………….………..………..........….….....$2.95
Profit: $2.95 - $2.60 = $0.35
(40 X 100 X $0.35) = $1,400 or 16.00% in 7 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.
