Trade Alert – (TBT) June 7, 2012

As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.

Trade Alert – (TBT)

Sell the ProShares Ultra Short 20+ Year Treasury ETF (TBT) at $15.91 or best

Closing Trade


Portfolio weighting: 10%

I am going to use the 1 ½ point rally in the (TBT) this week to bail on this losing position. I don’t want to unnecessarily tie up capital in what may be a dead instrument this summer. If I do want to get more aggressive on the short side in the Treasury market, I will do it through the options on the (TLT) where I get the advantage of more leverage with better risk control.

Those who have a longer time frame may want to keep their position, or even double up here, as I believe that the (TBT) will finally bottom out sometime in the summer and rally into year end, possibly as high as the $22 level. In fact, we may have already seen the peak in bond prices which saw the ten year yield reach an unbelievable 1.42% last Friday.

The loss on this trade amounts to ($21.11 – $15.91) = $5.20. That subtracts ($5.20 X 474 shares) = $2,465, or 2.46% from the value of my notional $100,000 model portfolio. Let this be another lesson on the value of honoring your own stop losses, which I ignore at $18. Fortunately, I never doubled up on the way down, despite many entreaties from readers for me to do so. By keeping the position small at only 10%, and using an instrument with only 2:1 leverage, I live on to fight another day.