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 2023 $95-$98 in-the-money vertical Bull Call spread at $2.90 or best
Closing Trade
1-12-2023
expiration date: February 17, 2023
Portfolio weighting: 20% - double weighting
Number of Contracts = 80 contracts
Since we added this position a mere six trading days ago, the (TLT) has rocketed by $5.00. The yield on the ten-year US Treasury bond has plunged to a four-month low at 3.45%.
Since then, the risks for the (TLT) are rising.
The extremists who now control the House are not interested in governing or passing laws but in gaining clicks, raising money, and increasing their own speaker’s fees. This greatly increases the probability of a government shutdown and debt default by the summer.
It may have converted (TLT) from a straight-up trade to a flat-line trade. We will still make the maximum profit on call spreads and LEAPS but with greater risk.
In addition, the very first measure taken up by the House this week was to defund the IRS, encouraging tax fraud, depriving the government of $183 billion in tax revenues, and increasing the deficit. This is a huge negative for the bond market. The one-hour hold time to ask tax questions would remain as will the decrepit computer system.
With 85.71% of the maximum potential profit in hand, the risk/reward of continuing with this position for five more weeks is no longer favorable. I’ll run the rest of my bond positions into the January 20 options expiration.
Dry powder also has very high value with these types of moves.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) February 2023 $95-$98 in-the-money vertical Bull Call spread at $2.90 or best.
As a result, you get to take home $4,800, or 30.43% in 6 trading days. Well done, and on to the next trade!
After selling short bonds (TLT) from $180 all the way down to $91, I flipped to the long side on October 14. The next day, bonds saw their biggest rally in years, making instant millionaires out of several of my followers.
In a heartbeat, we went from super bear to hyper bull.
I am looking for the Fed to raise interest rates by 0.50% rise at the February 1 meeting, 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.
There is another huge bond positive in the works. In 2022, the US budget deficit dropped at its fastest rate in history, from $3 trillion to $1.5 trillion. Reduce the supply and prices can only go up. It’s basic supply in demand.
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 was a bet that the (TLT) would not fall below $98.00 by the February 17 options expiration in 30 trading days.
Here are the specific trades you need to exit this position:
Sell 80 February 2023 (TLT) $95 calls at………......….………$12.00
Buy to cover short 80 February 2023 (TLT) $98 calls at……$9.10
Net Proceeds:…………………….........…….………..………….….....$2.90
Profit: $2.90 - $2.30 = $0.60
(80 X 100 X $0.60) = $4,800, or 30.43% in 6 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.
