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) July 2020 $172-$175 in-the-money vertical Bear Put spread at $2.50 or best
Opening Trade
5-29-2020
expiration date: July 17, 2020
Portfolio weighting: 10%
Number of Contracts = 40 contracts
Bonds are continuing to slide, and I am going to be throwing gasoline on the fire by increasing my short position. A free fall in fixed income is a definite possibility.
So, I am going to use the $2 bounce off of yesterday’s low to increase my short position.
The fundamentals of this trade are very simple. With the national debt already rising from a record $24.3 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. Debt to GDP now stands at 113% but will rocket to 147% by next year.
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. This could be the start of the greatest short play in history.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) July 2020 $172-$175 in-the-money vertical Bear Put spread at $2.50 or best.
Don’t pay more than $2.75 or you’ll 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, which is absolute at a rock bottom level.
This is a bet that the (TLT) will not rise above $172.00 by the July 17 option expiration in 34 trading days. To lose money on this position, ten-year US Treasury yields would have to approach near 0.30%.
Here are the specific trades you need to execute this position:
Buy 40 July 2020 (TLT) $175 puts at………….………$12.00
Sell short 40 July 2020 (TLT) $172 puts at……..……$9.50
Net Cost:…………....……………….………..………….….....$2.50
Potential Profit: $3.00 - $2.50 = $0.50
(40 X 100 X $0.50) = $2,000 or 20% in 34 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 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.
