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) June 2020 $170-$175 in-the-money vertical Bear Put spread at $4.75 or best
Closing Trade
5-18-2020
expiration date: June 19, 2020
Portfolio weighting: 10%
Number of Contracts = 24 contracts
My own hard-earned experience tells me that when you get a gift in the form of a $3.5 point crash in the bond market in your favor, you take it.
That has been the outcome of Moderna’s progress in an RNA-based vaccine, which the Mad Hedge Biotech & Healthcare Letter has been covering in depth for months. As a result, bond yields have jumped from 0.64% to 0.71% overnight.
Investors are increasingly becoming convinced that we are on the eve of a great inflation, prompted by the massive spending that will be hitting the economy in coming months. Food prices are already up 20%, thanks to the collapse of the agricultural economy. Load up on frozen steaks now because they are about to disappear from the supermarket.
Who am I to argue?
My target for the (TLT) is to crash from the current $163.56 all the way down to $105 by sometime next year. Yes, ten-year yields could rocket from 0.71% to 3.25% even if the Fed keeps overnight rates near zero because the Fed has absolutely no control over long term interest rates.
I’m sorry, but one of the best trades in years is worth pursuing to the ends of the earth.
Here, I increased my short position with a longer-dated six-week play on the June option expiration with strike prices $5 closer to the money than the last bunch. Yes, this is a much more aggressive short position.
We have already made huge profits in our bond shorts which I plan to add to.
Bond option volatilities are still spectacularly high, offering ample opportunities to make money with vertical bear put spreads.
The fundamentals of this trade are very simple. With the national debt already rising from a record $24 trillion to an eye-popping $32 trillion by the end of 2020, the US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) June 2020 $170-$175 in-the-money vertical Bear Put spread at $4.75 or best.
As a result, you get to earn $1,320, or 13.09% in 4 trading days. The risk/reward of continuing is no longer favorable. Well done, and on to the next trade.
If you have the ProShares Ultra Short 20 Year Plus Treasury Bond ETF (TBT) outright keep it for a medium-term investment.
This was a bet that the (TLT) would not rise above $170.00 by the June 19 option expiration in 27 trading days. To lose money on this position, ten-year US Treasury yields would have to approach 0.35%.
Here are the specific trades you need to exit this position:
Sell 24 June 2020 (TLT) $175 puts at…………............………$12.30
Buy to cover short 24 June 2020 (TLT) $170 puts at…………$7.55
Net Proceeds:………………………........….………..………….….....$4.75
Profit: $4.75 - $4.20 = $0.55
(24 X 100 X $0.55) = $1,320 or 13.09% in 4 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.
