As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.
Trade Alert - (TLT)
Sell the iShares Barclay 20+ Year Treasury Bond Fund (TLT) November, 2014 $122-$125 in-the-money vertical bear put spread at $2.05 or best
Closing Trade
10-20-2014
expiration date: November 21, 2014
Portfolio weighting: 10%
Number of Contracts = 40 contracts
You can sell this put spread anywhere from $1.90-$2.05 and prudently cut your losses.
We have just witnessed a 7-point collapse in the (TLT) in three trading days. Unfortunately, all this does is cut our losses, as we were short going into one of the most vicious interest rate spikes in history.
In one day, the yield on the ten-year Treasury bond crashed from 2.20% to 1.86%, and then back up to 2.15%. It sits at 2.17% as I write this. You must consider a loss this small being the wrong way in this horrific condition as a win.
Although the (TLT) is still in the money on your strike prices, spectacularly high volatility means we are losing money on the position.
There are better risk/reward trades elsewhere right now.
As for my own (TBT) position, I am going to hold on. This is a relatively non-leveraged, low risk position that will benefit as it becomes more obvious that the top in bonds is in.
Option prices are all over the map these days, so this is just an educated guess as to where the spread might be trading. To zero in on more accurate prices, I am now checking them on two different platforms before I send Trade Alerts out.
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.
Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months farther out.
Here are the specific trades you need to execute this position:
Sell 40 November, 2014 (TLT) $125 puts at?????$4.85
Buy to cover short 40 November, 2014 (TLT) $122 puts at?.$2.80
Net Proceeds:??????????????????.....$2.05
Loss: $2.47 - $2.05 = $0.42
(40 X 100 X $0.42) = $1,680 or 1.68% profit for the notional $100,000 portfolio.
