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 2021 $152-$155 in-the-money vertical Bear Put spread at $2.60 or best
Opening Trade
11-22-2021
expiration date: December 17, 2021
Portfolio weighting: 20% - a double position
Number of Contracts = 80 contracts
We have just seen a nice four-point rally in the (TLT) which I am more than happy to sell into.
Biden Appointed Jay Powell for a second term in a major lurch to the middle by the president. It’s the opening shot in the 2022 mid-term elections. I’ll approve your Fed governor if you pass my social safety net. It turned out to be impossible to find anyone more dovish than Jay Powell.
While the reappointment of the greatest dove of all times is positive for bonds, the news is now in the price.
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.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December 2021 $152-$155 in-the-money vertical Bear Put spread at $2.60 or best.
Don’t pay more than $2.75 or you’ll be chasing on a risk/reward basis.
If you don’t play options, just go out and buy the ProShares Ultra Short Treasury Bond Fund (TBT) outright.
With 70% of the US population already immune 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 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 $28 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 is a bet that the (TLT) will not rise above $152.00 by the December 17 option expiration in 19 trading days.
Here are the specific trades you need to execute this position:
Buy 80 December 2021 (TLT) $155 puts at………….………$8.80
Sell short 80 December 2021 (TLT) $152 puts at…….……$6.20
Net Cost:………………………….………..…………............….....$2.60
Potential Profit: $3.00 - $2.60 = $0.40
(80 X 100 X $0.40) = $3,200 or 15.38% in 19 trading days.
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.
