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) June 2019 $128-$131 in-the-money vertical BEAR PUT spread at $2.60 or up to $2.70
Opening Trade
5-14-2019
expiration date: June 21, 2019
Portfolio weighting: 10%
Number of Contracts = 38 contracts
I think the bond market has risen far enough and volatility is still high enough that what I call “free money trades” are starting to set up in the options in the US Treasury market.
I figure that in worst case, a delay of only months in the China trade deal is worth about $2,250 of downside in the Dow average. So far, we have suffered $1,400 of downside.
That will remain true as long as the Fed keeps interest rates unchanged, a far larger certainty now that the stock market is falling and the trade war has escalated.
I also like the idea of going short bonds into the June 28-29 G-20 meeting in Osaka, Japan, the next opportunity for a Trump-Xi meeting. Speculation of a deal will be rife then and the market should rally into it.
We also have a nice double top setting up for the (TLT).
Therefore, I am buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) June 2019 $128-$131 in-the-money vertical BEAR PUT spread at $2.60 or best
Don’t pay for than $2.75 or you will be chasing.
If you don’t do options, buy the ProShares Ultra Short 20 Year Plus Treasury Bond ETF (TBT) outright for a quick pop.
This is a bet that the (TLT) will not rise above $128 by the June 21 option expiration in 28 trading days. To lose money on these position, ten-year US Treasury yields would have to drop below 2.25% very quickly. That is a bet I am willing to make.
The fundamental reasons for this trade are growing by the day
1) Bond auctions are getting increasingly difficult to pull off. It’s just a matter of time before we get a failed auction that completely crashes the bond market. The government has to issue a staggering $2 trillion in bonds this year to cover massive deficit spending.
2) Tax cuts are providing further stimulus for the US economy, so is the NAFTA renewal. The economic data is running red hot. A trade deal with China will crush this market.
3) We also now have evidence that China has started to dump its massive $1 trillion in US Treasury bond holdings, or at least boycotting new auctions.
4) Capping US interest rates, for the time being, will knock the wind out of the US dollar, scaring away the foreign buyers who take down about half of all US Treasury auctions.
All are HUGELY bond negative.
That should take bond prices down to new 2019 lows and yields to new highs.
Here are the specific trades you need to execute this position:
Buy 38 June 2019 (TLT) $131 puts at………….………$6.00
Sell short 38 June 2019 (TLT) $128 puts at…………$3.40
Net Cost:……………………..…….………..………….….....$2.60
Potential Profit: $3.00 - $2.60 = $0.40
(38 X 100 X $0.40) = $1,520 or 15.38% in 28 trading days.
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 on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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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 close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
