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 $116-$119 in-the-money vertical BEAR PUT spread at $2.60 up to $2.75
Opening Trade
11-9-2018
expiration date: December 21, 2018
Portfolio weighting: 10%
Number of Contracts = 38 contracts
Presidential advisor Peter Navarro ratcheted up the trade war with China today with more incendiary comments, prompting a 300-point dive in the Dow Average and a one-point rally in the bond market.
Navarro, who knows nothing about China, doesn’t speak Chinese, proffers tin hat economic theories, and has only visited the country once for a few days, is spearheading the president efforts there.
I think we are about to move sharply from a severe “RISK OFF” to a “RISK ON” trading conditions. I am therefore increasing my risk positions sharply today.
Look at a long-term chart for the (TLT) and it is clear that we are about to suffer a major breakdown that will take the market several points lower in a bout of cascading selling.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December 2018 $116-$119 in-the-money vertical BEAR PUT spread at $2.60 or best.
This is just my opening gambit. I plan to eventually take this to a triple position, as I believe that ten-year US Treasury bond yields will reach for a 3.50% yield by the end of the year.
The backdrop for the bond market is looking worse than ever. The budget deficit is about to break $1 trillion for the first time since the crash. Rising interest rates mean the government’s debt burden is about to grow by leaps and bounds. The US Treasury is hitting the markets daily with massive new issuance on an almost daily basis.
This is a bet that the (TLT) will not rise above the $116.00 strike price by the December 16 expiration date in 34 trading days.
Don't pay more than $2.75 or you'll be chasing.
At least with this one, we have the certainty that US Treasury bonds will be yielding 4% in a year, versus today’s 3.19%.
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 market.
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.
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.
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 38 December 2018 (TLT) $119 puts at………….………$6.00
Sell short 38 December 2018 (TLT) $116 puts at………….$3.40
Net Cost:………………………….………..………….….....$2.60
Potential Profit: $3.00 - $2.60 = $0.40
(38 X 100 X $0.40) = $1,520 in 34 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.
