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) – BUY
BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT) September 2020 $172.50-$175.00 in-the-money vertical Bear Put spread at $2.20 or best
Opening Trade
9-3-2020
expiration date: August 21, 2020
Portfolio weighting: Increase from 10% to 20%
Number of Contracts = 44 contracts
We have just seen a monster $7.50 rally in the (TLT) which I am more than happy to sell into.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) September 2020 $172.50-$175.00 in-the-money vertical Bear Put spread at $2.20 or best.
Don’t pay more than $2.40 or you’ll be chasing.
If you don’t play options, just go out and buy the ProShares Ultra Short Treasury Bond Fund (TBT) outright.
This cycle of COVID-19 infections is imminently going to peak out and start declining, at least for the short term.
As a result, I believe the core long FANG trade is long overdue for a break. Instead, I think we are about to witness a major rotation into domestic economic “recovery” stocks. Stocks will keep going up, but the leadership will change. Bonds and gold are also due for profit-taking.
The bond market has just seen one of the sharpest rallies in history, the United States US Treasury bond fund (TLT) plunging an eye-popping 245 basis points in four months. That took ten-year yields from 0.95% to 0.52%. Those who got rate locks on their refi’s last week, well done.
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:
Buy 44 September 2020 (TLT) $175.00 puts at………….………$8.50
Sell short 44 September 2020 (TLT) $172.50 puts at…………$6.30
Net Cost:……………………….................….………..………….….....$2.20
Potential Profit: $2.50 - $2.20 = $0.30
(44 X 100 X $0.30) = $1,320 or 13.63% in 9 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.
