How about if I told you there was a relatively low-risk trade setting up that offered a 200% return? Would it help if I told you it was in the world’s most liquid market?
So, I bet you’re thinking about the latest small-cap technology stocks, Bitcoin, vintage cars, or collectible French postage stamps.
In reality, I’m talking about the US Treasury bond market.
I’m not saying you should add this position today, nor am I advocating that you bet the ranch on this one. But there is one hell of a trade setting up in the coming months.
Let’s go through what Albert Einstein used to call a “thought experiment.”
Today, the United States Treasury Bond Fund (TLT) is trading near an all-time high at $166. If you go a mere $25 out-of-the-money, you can buy the (TLT) January 2022 $140-$143 vertical bear put spread for $1.00.
If interest rates rocket from today’s 0.65% to back up to 1.40% and the (TLT) collapses from $166 down to $140 by January 21, 2022, the value of this position will soar from $1.00 cents to $3.00, a net gain of 200%.
This is not some pie-in-the-sky, Armageddon type scenario. This, in fact, was the level of interest rates that prevailed only in March, five months ago. The nice thing about seeing interest rates on the way down, you always get to revisit them again on the way up.
I can pretty much guarantee you that when the (TLT) peaks out, celebrity commentators on CNBC, analysts at JP Morgan, and strategists at Seeking Alpha will be running around with their hair on fire screaming that the next stop is much higher.
That’s always how things end.
Not only that, you might get the chance to put these on for several months in a row, in which case you will have multiple 200% gains in a row lining up.
Like I said, there is one heck of a trade setting up. All you have to do is be patient.
