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) May 2021 $143-$146 in-the-money vertical Bear Put spread at $2.96 or best
Closing Trade
5-12-2021
expiration date: May 21, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I am going to take advantage of the $4.00 dive in the (TLT) since last week to take the home run on my bond short. The highest Consumer Price Index in 13 years for the Consumer Price Index was absolutely what bond owners did not want to own. They are voting with their feet.
Those who added my bond LEAPS last week made an instant killing.
With 92.00% of the maximum potential profit in hand, the risk reward of continuing with this position is no longer favorable. I’d rather have the extra cash to roll into a better position for the June expiration on the next stock market crash.
So, I am taking the home running here and raising more cash.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) April 2021 $143-$146 in-the-money vertical Bear Put spread at $2.96 or best.
By coming out here, you get to take home $1,840, or 18.40% in 26 trading days.
If you can’t get a great price, then just run this position into expiration. There is no way the (TLT) will reach $143 again in my lifetime.
Well done and on to the next trade!
The memo is out now. Bonds have already dropped $25 in 2021 and the worst is yet to come. This is becoming a one-way trade. Therefore, I will be selling even small rallies, like the one we just saw.
With 2021 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 from a record $23 trillion to an eye-popping $28 trillion in 2020. In 2021, it is expected to explode to $32 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) will not rise above $143.00 by the May 21 option expiration in 33 trading days. To lose money on this position, ten-year US Treasury yields would have to plunge to 1.34% from the current 1.64%, which they won’t in three weeks.
Pigs would have to fly first.
Here are the specific trades you need to exit this position:
Sell 40 May 2021 (TLT) $146 puts at……….......….….……$9.50
Buy to cover short 40 May 2021 (TLT) $143 puts at….…$6.54
Net Proceeds:………………………….………..…...……….….....$2.96
Profit: $2.96 - $2.50 = $0.46
(40 X 100 X $0.46) = $1,840, or 18.40% in 26 trading days.
The Fat Lady is Singing 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.
