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) August 2020 $175-180 in-the-money vertical bear put spread at $4.85 or best
Closing Trade – NOT FOR NEW SUBSCRIBERS
7-15-2020
expiration date: August 21, 2020
Portfolio weighting: 10%
Number of Contracts = 22 contracts
With this trade, we have racked up 22 consecutive profitable trade alerts, a new record. Our trading here at Mad Hedge has been hotter than a pistol, and we have three more trades expiring at max profit on Friday.
I am going to use the $1.20 swan dive in the bond market this morning to take profits in my short. The risk/reward in hanging on for another month for the last 15 cents is no longer favorable. And you should never resist an opportunity to grab a healthy profit in only four trading days.
At the slightest sign of weakness in stocks, we should see a big rally in bonds. I want to have dry powder in hand with which to take maximum advantage of that.
We learned yesterday that the US Budget Deficit Soared to $867 Billion in June, taking it to an unprecedented $10.4 trillion annual rate. The national debt will rocket by 50% this year. Your grandkids are going to have a monster bill to pay. Keep selling every rally in the US dollar (UUP) and the bond market (TLT) and buy gold (GLD).
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) August 2020 $175-$180 in-the-money vertical bear put spread at $4.85 or best. By coming out here you get to take home $770, or 7.77% in 4 trading days. Well done and on to the next trade.
This was a bet that the (TLT) will not rise above $175.00 by the August 21 option expiration in 30 trading days. To lose money on this position, ten-year US Treasury yields would have to approach 0.50%, up from the current 0.65%. The (TLT) would have to go nine points higher for us to take a shot on this trade.
With the US government crushing the bond market with unprecedented new issuance, that is a bet I am willing to make.
Here are the specific trades you need to exit this position:
Sell 22 August 2020 (TLT) $180 puts at……..…….………$14.70
Buy to cover short 22 August 2020 (TLT) $175 puts at……$9.85
Net Proceeds:……...……………….………..………….….....$4.85
Profit: $4.85 - $4.50 = $0.35
(22 X 100 X $0.35) = $770, or 7.77% in 4 trading days.
The Fat Lady is Singing for the Bond Market
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 a bear put 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.
