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) – SELL
Sell the iShares Barclays 20+ Year Treasury Bond Fund (TLT) February 2021 $144-$147 in-the-money vertical BULL CALL spread at $2.50 or best
Opening Trade
1-12-2021
expiration date: February 19, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I hate it when I am so right!
The bond market collapse is accelerating faster than I expected. The risk of holding a countertrend position like an increase in bonds has just risen dramatically. Holding a position with the market going against you is a dull, mean, and brutish way to live.
We have just rallied a full $1.20 off of the $149.93 low today, thanks to the best Treasury bond auction action in more than a year. Some $38 billion in ten-year bonds were placed. Finally, yield-starved bond investors are getting a modicum of income, 36 basis points higher than they were getting six weeks ago.
The memo is out now. Bonds have already dropped $8 in six trading days 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.
However, we are now dropping too fast, with the (TLT) now down a ferocious $8 in the first three trading days of 2021.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) February 2021 $144-$147 in-the-money vertical BULL CALL spread at $2.50 or best.
This was a bet that the (TLT) will not fall below $147.00 by the February 19 option expiration in 32 trading days. At the rate we are falling, we could be there by next week.
To lose money on this position, ten-year US Treasury yields would have to soar from 1.13% today to 1.53%, which they won’t.
Longer term, I expect the (TLT) to keep falling, eventually reaching at least a $1.50% yield in 2021.
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.
Here are the specific trades you need to exit this position:
Sell 40 February 2021 (TLT) $144 calls at……....…….………$9.30
Buy to cover short 40 February 2021 (TLT) $147 calls at…$6.80
Net Proceeds:……….......………………….………..………….….....$2.50
Profit: $2.50 - $2.50 = $0.00
(40 X 100 X $0.00) = $0 or 0.00%.
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.
