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) – STOP LOSS
SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2022 $110-$113 in-the-money vertical Bull Call spread at $2.30 or best
Closing Trade
5-5-2022
expiration date: May 20, 2022
Portfolio weighting: Increase from 10% to 20%
Number of Contracts = 40 contracts
We are having a collapse in bond prices of historic proportions. We are rapidly approaching my stop loss trigger of the upper strike of $113, so, I have no choice but to bail on this position, especially with a double weighting.
Fortunately, this loss is more than offset by the profits on our three short (TLT) positions.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2022 $110-$113 in-the-money vertical Bull Call spread at $2.30 or best
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.
To lose money on this trade the ten-year US Treasury yield would have to rise above 3.30% in four weeks, which is highly unlikely. You need to wait until yearend to see those kinds of numbers.
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.
This was a bet that the (TLT) would not fall below $113.00 by the May 20 option expiration in 21 trading days. Here are the specific trades you need to close out this position:
Sell 40 May 2022 (TLT) $110 calls at……...............…….………$5.50
Buy to cover short 40 May 2022 (TLT) $1113 calls at…………$3.20
Net Proceeds:………………………….….........……..………….….....$2.30
Loss: $2.60 - $2.30 = -$0.30
(40 X 100 X -$0.30) = -$1,200 or -13.04%.
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.
