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) July 2020 $150-$153 in-the-money vertical Bull call spread at $2.90 or best
Closing Trade
6-26-2020
expiration date: July 17, 2020
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I am going to use the monster $12.5 rally in the (TLT) from the bottom to take profits. This position has done its job hedging the most aggressive short positions in the bond market in the 13-year history of the Mad Hedge Fund Trader.
The bond market is now overbought again. A series of record Treasury refundings finished this week, and bonds always rally afterwards.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) July 2020 $150-$153 in-the-money vertical Bull call spread at $2.90 or best. By coming out here, you get to take home $1,600, or 16.00% in nine trading days.
You also are capturing 80% of the maximum potential profit. The risk/reward of continuing is no longer favorable.
This was a bet that the (TLT) would not fall below $153.00 by the July 17 option expiration in 23 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 23 trading days.
Here are the specific trades you need to exit this position:
Sell 40 July 2020 (TLT) $150 calls at………….…....……$15.00
Buy to cover short 40 July 2020 (TLT) $153 calls at…$12.10
Net Proceeds:………………………….………..………….…......$2.90
Profit: $2.90 - $2.50 = $0.40
(40 X 100 X $0.40) = $1,600 or 16.00% in nine 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.
