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) September 2020 $172.50-$175.00 in-the-money vertical Bear Put spread at $2.49 or best
Closing Trade - NOT FOR NEW SUBSCRIBERS
9-10-2020
expiration date: September 18, 2020
Portfolio weighting: Decrease from 10% to 0%
Number of Contracts = 44 contracts
We have just seen a monster $5.00 dive in the (TLT) which I sold short only five trading days ago.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) September 2020 $172.50-$175.00 in-the-money vertical Bear Put spread at $2.49 or best.
By coming out here you get to realize 96.67% of the maximum potential profit. The risk reward of continuing is no longer favorable. You also get to take home another $1,276, or 13.18% in 5 trading days on top of the profit from the last (TLT) trade. That is a total home run in these difficult markets.
In addition, I want to raise some dry powder her in case we get another out of the blue increase in market volatility (VIX). It looks like there will be no more economic stimulus passed by Congress this year and when markets realize this, there could be another crash.
If you bought the ProShares Ultra Short Treasury Bond Fund (TBT) outright keep it. Interest rates are going much higher over the medium term.
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 from here. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me.
This is a bet that the (TLT) will not rise above $172.50 by the September 18 option expiration in 9 trading days. To lose money on this position ten-year US Treasury yields would have to approach 0.35%.
Here are the specific trades you need to execute this position:
SELL 44 September 2020 (TLT) $175.00 puts at……….......….………$12.75
Buy to cover short 44 September 2020 (TLT) $172.50 puts at.....…$10.26
Net Proceeds:………………….....................……….………..………….….....$2.49
Profit: $2.49 - $2.20 = $0.29
(44 X 100 X $0.29) = $1,276, or 13.18% in 5 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.
