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) October 2022 $110-$113 in-the-money vertical Bear put spread at $2.95 or best
Closing Trade
10-11-2022
expiration date: October 21, 2022
Portfolio weighting: 10%
Number of Contracts = 40 contracts
With 87.5% of the maximum profit in hand, I am going to take profits on my short in the bond market. The risk/reward of continuing for eight more trading days is no longer favorable.
This enables me to raise cash which I can put to work if there are any more meltdowns this week. It also eliminates the “call away risk,” which is only a risk for traders who don’t know how to handle these.
I got into this position only because the Bank of England moved to support a crashing Pound by flipping from a seller to a buyer in the long-dated bond market, thus dropping interest rates sharply. The move was designed to offset the new Truss government’s plan to cut taxes and boost deficit spending. The BOE also indicated that interest rate hikes are coming.
The bond vigilantes are back.
Here is the bad news for bonds: we may get another two 75 basis points at the next Fed meeting on November 1-2.
Selling short the (TLT) last November has been one of the best trades of my career. Since then, the beleaguered ETF has collapsed some $81.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) October 2022 $110-$113 in-the-money vertical Bear put spread at $2.95 or best.
As a result, you get to take home $1,400, or 13.46% in 9 trading days.
This was a bet that the (TLT) would not rise above $110.00 by the October 21 options expiration in 21 trading days.
Here are the specific trades you need to close out this position:
Sell 40 October 2022 (TLT) $113 puts at…………........………$14.00
Buy to cover short 40 October 2022 (TLT) $110 puts at……$11.05
Net Proceeds:………………………….………..........………….….....$2.95
Profit: $2.95 - $2.60 = $0.35
(40 X 100 X $0.35) = $1,400, or 13.46% in 9 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.
