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) – TAKE PROFITS
SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November 2020 $166-$169 in-the-money vertical Bear Put spread at $2.98 or best
Closing Trade - NOT FOR NEW SUBSCRIBERS
11-9-2020
expiration date: November 20, 2020
Portfolio weighting: 10%
Number of Contracts = 38 contracts
News that Pfizer (PFE) has discovered a Covid-19 vaccine that is 90% effective has caused the US Treasury bond market to utterly collapse, down an incredible $7 points from our entry point three days ago. This is one of my best home runs ever.
The prospects of strong economic growth are revived in a major way. We have reached 95% of the maximum potential profit point. With only 9 days to expiration, the risk/reward of continuing is no longer favorable.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November 2020 $166-$169 in-the-money vertical Bear Put spread at $2.98 or best. By coming out here, you get to take home $1,444, or 14.61% in only three trading days!
Thanks to the shocking election outcome, we had the first good short side entry point for US Treasury bonds in four months last week.
The (TLT) had then 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.
If you have the ProShares Ultra Short Treasury Bond Fund (TBT) outright keep it. It is going much higher.
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 was a bet that the (TLT) would not rise above $169.00 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 exit this position:
Sell 38 November 2020 (TLT) $169 puts at………….….........……$13.50
Buy to cover short 38 November 2020 (TLT) $166 puts at....…$10.52
Net Proceeds:………...............………………….………..………….….....$2.98
Profit: $2.98 -$2.60 = $0.38
(38 X 100 X $0.38) = $1,444, or 14.61% in 3 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.
