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 2021 $137-$140 in-the-money vertical Bull Call spread at $2.90 or best
Closing Trade
10-4-2021
expiration date: October 15, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I happened to not believe that a default will take place. It never does. Somehow, my former college professor, Janet Yellen, pulled things together and pull a rabbit out of the hat. Therefore, a short term pop in the bond market took place.
Since I am 100% invested, I have to sell something to pay for the (BAC) position I just bought. At $2.90, I have 75% of the maximum potential profit in hand so I’m unloading my long in the (TLT). In any case, this was a counter-trend position good for taking quick profits.
If you have excess cash, run this position into the October 15 option expiration in 9 trading days for 100% of the profit.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) October 2021 $137-$140 in-the-money vertical Bull Call spread at $2.90 or best.
As a result, you get to take home $1,200, or 11.54% in 4 trading days. Well done and on to the next trade!
This was just a short-term counter-trend October expiration play. Over the medium term, I expect bonds to fall dramatically.
The outlook for fixed income is absolutely awful. The next big rotation in the markets will be for tech and bonds to peak out and for financials to bounce hard off a bottom. This will result from coming major upgrades in economic growth, which analysts and strategists are wildly underestimating.
As soon as everyone gets the parts and labor they want, it is going to be off to the raises. Add to that a Fed taper on monetary stimulus and interest rates will soar. At the very least they have to stop stimulating the housing market with $40 billion a month worth of mortgage-backed securities.
With 2021 expected to be one of the strongest years for economic growth in history, there is no chance you’ll see a major rally in the US Treasury bond market from here. The only question is how fast it will fall.
The fundamentals of this trade are very simple. The national debt rose from a record $23 trillion to an eye-popping $28 trillion in 2020. In 2021 it is expected to explode to $32 trillion. The US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise and interest rates to fall 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 fall below $140.00 by the October 15 option expiration in 12 trading days. To lose money on this position, ten-year US Treasury yields would have to rocket to 1.70% from the current 1.55%, which they won’t in 12 days.
Here are the specific trades you need to exit this position:
Sell 40 October 2021 (TLT) $137 calls at…………...............…$8.50
Buy to cover short 40 October 2021 (TLT) $140 calls at……$5.60
Net Proceeds:………………………….………..........………….….....$2.90
Profit: $2.90 - $2.60 = $0.30
(40 X 100 X $0.30) = $1,200 or 11.54% in 4 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.
