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) – BUY
BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT) July 2020 $151-$154 in-the-money vertical Bull call spread at $2.50 or best
Opening Trade
6-19-2020
expiration date: July 17, 2020
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I am going to use the $1.25 dive in the (TLT) today prompted by news that China is going to buy more farm products to nibble again on the long side.
We currently have the most aggressive short position in the bond market in the 13-year history of the Mad Hedge Fund Trader. We have already captured an astonishing 27 points of the move down since the March peak.
The bond market is now oversold again. A series of Treasury refundings will finish this week, taking some pressure off the market. We are overdue for a rallyette. And I want to hedge some of my huger short bond exposure. And I could always use another $2,000.
Bond option volatilities are still spectacularly high, offering ample opportunities to make money with vertical bear put spreads.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) July 2020 $151-$154 in-the-money vertical Bull call spread at $2.50 or best.
Don’t pay more than $2.70 or you’ll be chasing.
If you don’t do options, stand aside. There is no trade for you at this level.
This is a bet that the (TLT) will not fall below $154.00 by the July 17 option expiration in 19 trading days. To lose money on this position, ten-year US Treasury yields would have to approach 0.50%, up from the current 0.76% in only 19 trading days.
Here are the specific trades you need to execute this position:
Buy 40 July 2020 (TLT) $151 calls at………….………$11.00
Sell short 40 July 2020 (TLT) $154 calls at……….…$8.50
Net Cost:………………………….………..………….…........$2.50
Potential Profit: $3.00 - $2.50 = $0.50
(40 X 100 X $0.50) = $2,000 or 20.00% in 19 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 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.
