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) December, 2018 $117-$120 in-the-money vertical BEAR PUT spread at $2.50 or best
Opening Trade
11-15-2018
expiration date: December 21, 2018
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I think markets are discounting a recession here that isn’t going to happen anyway. Not yet anyway, not until well into 2019.
Look no further than Wal-Mart’s (WMT) blockbuster earnings announced this morning, or the October Retail sales, which came in at a blistering 0.8% versus an expected 0.5%.
Therefore, I am buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December, 2018 $117-$120 in-the-money vertical BEAR PUT spread at $2.50 or best.
The expiration date for this spread is particularly convenient in that we should reach the maximum profit point well before the December 19 Fed meeting when they are expected to raise interest rates by another 25 basis points.
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 $1.4 trillion in bonds next year to cover massive deficit spending.
2) The Fed has already started dropping on the bond market in $6 billion a month, or $200 million a day, worth of paper in its QE unwind.
3) Tax cuts are providing further stimulus for the US economy, so is the NAFTA renewal. The economic data is running red hot.
4) We also now have evidence that China has started to dump it’s massive $1 trillion in US Treasury bond holdings, or at least boycotting new auctions.
All are HUGELY bond negative.
Do not pay more than $2.70 or you'll be chasing.
If you can't do options stand aside.
That should take bonds down to new 2018 lows. What we could be seeing here is the setting up for the perfect head and shoulders top of the (TLT) for 2018.
Here are the specific trades you need to execute this position:
Buy 40 December, 2018 (TLT) $120 puts at………….………$6.40
Sell short 40 December, 2018 (TLT) $117 puts at……$3.90
Net Cost:………………………….………..………….….....$2.50
Potential Profit: $3.00 - $2.50 = $0.50
(40 X 100 X $0.50) = $2,000 or 20% in 30 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.
