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Trade Alert - (TLT) – BUY
BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT) October 2022 $98-$101 in-the-money vertical Bull Call spread at $2.55 or best
Opening Trade
9-14-2022
expiration date: October 21, 2022
Portfolio weighting: 10%
Number of Contracts = 40 contracts
Selling short the (TLT) last November has been one of the best trades of my career. Since then the beleaguered ETF has collapsed some $50.
However, with the (TLT) now at $108 and the ten-year US Treasury bond yield at 3.40%, we are now within range of double-topping at my 2022 target of 3.50%. To lose money on these strike prices, the yield would have to rise above 3.75% in five weeks, which is a bet that I am willing to make.
The horrendous CPI report yesterday has given us a great entry point for this trade. Notice that bonds opened low, then rallied for the rest of the day.
As for the Fed interest rate hike next week, their goal is to be predictable, and I highly doubt that they are going more than 75 basis points. The surprise would be 50 basis points, which would be hugely bond-positive.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) October 2022 $98-$101 in-the-money vertical Bull Call spread at $2.55 or best.
Don’t pay more than $2.75 or you’ll be chasing on a risk/reward basis.
The only way to lose money on this position is if the US economy absolute catches on fire and sends interest rates soaring in the next month. I doubt this is going to happen.
This is a bet that the (TLT) will not fall below $101.00 by the October 21 option expiration in 27 trading days.
Here are the specific trades you need to execute this position:
Buy 40 October 2022 (TLT) $98 calls at………….………$10.00
Sell short 40 October 2022 (TLT) $101 calls at……..……$7.45
Net Cost:…………………………........………..…………....….....$2.55
Potential Profit: $3.00 - $2.55 = $0.45
(40 X 100 X $0.45) = $1,800 or 17.64% in 27 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.
