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 2019 $129-$132 in-the-money vertical BULL CALL spread at $2.87 or best
Closing Trade
9-18-2019
expiration date: October 18, 2019
Portfolio weighting: 10%
Number of Contracts = 38 contracts
Since I bought the bond market at the Friday close, the (TLT) has rallied an impressive four points, taking ten-year US Treasury yields down from 1.90% to 1.70%.
In this kind of extremely volatile market, you don’t want profits to grow hair on them, especially hours before a crucial Fed interest rate decision.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) August 2019 $129-$132 in-the-money vertical BULL CALL spread at $2.87 or best.
By coming out here, you get to take in a respectable $1,026 or 10.38% in 3 trading days. You have captured 67.5% of the maximum potential profit in this trade.
This was a bet that the (TLT) would not fall below $132.00 by the October 18 option expiration in 25 trading days. To lose money on this position, ten-year US Treasury yields would have to rise above 2.15%. That was a bet I was willing to make on top of a 11-point rally.
These strikes had the additional benefit in that the (TLT) has major support at the 50-day moving average at $137.47.
The fundamental reasons for this trade are quite simple. The US now has among the world’s highest interest rates. They are about to join the ranks of the world’s lowest. Some 35% of the world’s outstanding government debt now has negative interest rates. In Germany, the figure is an eye-popping 88%. That is hugely bullish for bond prices everywhere.
Here are the specific trades you need to exit this position:
Sell 38 October 2019 (TLT) $129 calls at………….......………$11.35
Buy to cover short 38 October 2019 (TLT) $132 calls at……$8.48
Net Proceeds:………………………….………..………….........….....$2.87
Profit: $2.87 - $2.60 = $0.27
(38 X 100 X $0.27) = $1,026 or 10.38% in 3 trading days.
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 on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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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 close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.