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) November 2020 $166-$169 in-the-money vertical Bear Put spread at $2.60 or best
Opening Trade
11-4-2020
expiration date: November 20, 2020
Portfolio weighting: 10%
Number of Contracts = 38 contracts
Thanks to the shocking election outcome, we now have the first good short side entry point for US Treasury bonds in four months.
The (TLT) has rallied $5 and interest rates have plunged because failure by the democrats to capture the senate means that any future stimulus package will be much smaller.
With a democratic president, you can also count on the Senate at long last discovering the new religion of fiscal responsibility. Notice that Caterpillar (CAT) dove $10 this morning for this reason.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November 2020 $166-$169 in-the-money vertical Bear Put spread at $2.60 or best.
Don’t pay more than $2.70 or you’ll be chasing.
If you don’t play options, just go out and buy the ProShares Ultra Short Treasury Bond Fund (TBT) outright.
Bonds and gold are also due for profit-taking.
The bond market has just seen one of the sharpest rallies this year, the United States US Treasury bond fund (TLT) plunging an eye-popping 20 basis points in five days. That took ten-year yields from 0.90% to 0.70%.
The fundamentals of this trade are very simple. With the national debt already rising from a record $23 trillion to an eye-popping $30 trillion by the end of 2020, the US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise 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 $166.00 by the November 20 option expiration in 12 trading days. To lose money on this position, ten-year US Treasury yields would have to approach 0.45%.
Here are the specific trades you need to execute this position:
Buy 38 November 2020 (TLT) $169 puts at………….………$8.30
Sell short 38 November 2020 (TLT) $166 puts at…….……$5.70
Net Cost:……………………...........…….………..………….….....$2.60
Potential Profit: $3.00 -$2.60 = $0.40
(38 X 100 X $0.40) = $1,520 or 15.38% in 12 trading days.
The Fat Lady is Singing for the Bond Market
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.
