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) – EXPIRATION AT MAX PROFIT
EXPIRATION of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November 2021 $150-$153 in-the-money vertical Bear Put spread at $3.00
Closing Trade
11-18-2021
expiration date: November 19, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
We have an abundance of riches this month!
I am going to run the P&L on this position now, so I don’t overwhelm you and my staff with a record ten closing trade alerts at the Friday close.
My bet that interest rates would soar, and bonds would crash has proved wildly successful. Yes, I know some of you were sweating bullets last week when we broke the strike prices, but that is now ancient history.
I think it is therefore safe to call this position a win, even though the actual November 19 options expiration is not until tomorrow at 4:15 PM EST.
We are so far in the money that we have an ample cushion going into expiration.
Since we added this position, shares of the United States Treasury Bond Fund (TLT) have plunged from $151 to $145.
Therefore, we get to take home the maximum profit in this position, such is the magic of vertical bear put debit spreads. That means you get to take home $2,000 or 20.00% in 19 trading days.
Well done and on to the next trade!
You don’t have to do anything with this expiration.
Your broker will automatically use your long position to cover your short position, canceling out the total holdings.
The entire profit will be credited to your account on Monday morning, November 22 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
Treasury bonds have, in fact, been in a gentle downtrend that began in mid-July. I expect it to accelerate in the aftermath of the release of the Consumer Price Index Tuesday morning, which is expected to be unbelievably hot.
People are not taking a 1.60% yield on the ten-year US Treasury bond against a 6.2% inflation rate generating a negative 4.60% real yield because they think it’s a great deal.
With 70% of the US population already vaccinated and 10% having immunity from the disease, only 20% are left to get the sickness. Eventually, ALL of them will get it, but it will not force a second shut down of the economy.
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. At the very least, they have to stop stimulating the housing market with $40 billion a month's worth of mortgage-backed securities.
With 2021 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 drop below 1.35% in four weeks, which is highly unlikely.
The fundamentals of this trade are very simple. The national debt rose from a record $23 trillion to an eye-popping $30 trillion in 2020. In 2021, it is expected to explode to $32 trillion. The US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise and interest rates to fall substantially from here. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me.
This was a bet that the (TLT) would not rise above $150.00 by the November 19 option expiration in 19 trading days.
Here is the specific accounting you need to close out this position:
Expiration of 40 November 2021 (TLT) $153 puts at…….….......….………$6.74
Expiration of short 40 November 2021 (TLT) $150 puts at……........……$3.74
Net Proceeds:…………………………......................……….......………….….....$3.00
Profit: $3.00 - $2.50 = $0.50
(40 X 100 X $0.50) = $2,000 or 20.00% in 19 trading days.
The Fat Lady is Singing for the Bond Market
