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 $164-$167 in-the-money vertical Bear Put spread at $2.95 or best
Closing Trade
1-12-2021
expiration date: February 19, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
Since we added a triple short a week ago, the bond market (TLT) has crashed by a gut-punching $8. We are now a humongous $14 below our nearest strike price. The yield on the ten-year US Treasury bond yield has shot up 24 basis points from 0.92% to 1.16%.
As a result, we have captured 87.50% of the maximum potential profit. The risk/reward of continuing for another month until the February 19 option expiration is no longer favorable.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) February 2021 $164-$167 in-the-money vertical Bear Put spread at $2.95 or best. The spread is trading at $2.95 so you have a shot at getting it done at my price.
As a result, we get to take home $1,400 or 13.46% in 5 trading days. Well done! You’re starting to get the hang of it.
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) would not rise above $164.00 by the February 19 option expiration in 33 trading days. To lose money on this position, ten-year US Treasury yields would have to approach 0.65%, which they won’t.
Here are the specific trades you need to exit this position:
Sell 40 February 2021 (TLT) $167 puts at……….....….........………$17.00
Buy to cover short 40 February 2021 (TLT) $164 puts at........…$14.05
Net Proceeds:………………………….……................…..………….….....$2.95
Profit: $2.95 - $2.60 = $0.35
(40 X 100 X $0.35) = $1,400 or 13.46% in 5 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.
