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) – EXPIRATION AT MAX PROFIT
EXPIRATION of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) March 2022 $127-$130 in-the-money vertical Bull Call spread at $3.00
Closing Trade
3-18-2022
expiration date: March 18, 2022
Portfolio weighting: 10%
Number of Contracts = 40 contracts
Just to be clear, this position does not expire at Max profit until today, Friday, March 18 at the 4:00 EST close. But with five positions expiring at the same time today, I am going to start rolling out the accounting now, so you don’t get overwhelmed.
With the upper strike price an astonishing 9.62% in the money, which is huge for the bond market, I think it is safe to call this one a win. As a result, you get to take home $1,600 or 16.00% in 17 trading days.
Well done, and on to the next trade.
You don’t have to do anything with this expiration.
Your broker will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning, March 21 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
The long-term outlook for fixed income is absolutely awful. The next big rotation in the markets will be for tech and bonds to peak out and for financials to bounce hard off a bottom. This will result from coming major upgrades in economic growth, which analysts and strategists are wildly underestimating.
As soon as everyone gets the parts and labor they want, it is going to be off to the raises. Add to that a Fed taper on monetary stimulus and interest rates will soar.
With 2022 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.
This trade is basically betting that interest rates will rise in front of the biggest borrowing in human history.
The fundamentals of this trade are very simple. The national debt rose to an eye-popping $30 trillion in 2021. In 2022, it is expected to explode to $33 trillion. The US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise and interest rates to fall 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 fall below $130.00 by the March 18 option expiration in 24 trading days. To lose money on this position ten-year US Treasury yields would have to rocket to 2.40% from the current 2.02%, which they didn’t.
Here is the specific accounting you need to close out this position:
Expiration of 40 March 2022 (TLT) $127 calls at……....……$5.85
Expiration of short 40 March 2022 (TLT) $130 calls at……$2.85
Net Proceeds:………………………….…………..............….….....$3.00
Profit: $3.00 - $2.50 = $0.50
(40 X 100 X $0.50) = $2,000 or 20.00% in 24 trading days.
The Fat Lady is Singing for the Bond Market
