Trade Alert – (TLT) August 20, 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 - (TLT)

Sell Short the (TLT) September $116-$111 put spread at $0.37 or best

Opening Trade


expiration date: 9-21-2012

Portfolio weighting: 5%on a delta basis

($5,000/100/$0.37) = 25 Contracts

I think a risk reversal in the markets is imminent, and the Treasury bond market is ripe for at least a five point rally. This is on the heels of an impressive 12 point sell off over the past month that has taken yields up from 1.38% to 1.83%.

If the (TLT) stays above $116 by the September 21 expiration, the value of this put spread goes to zero, giving you a profit of $0.37. That is a healthy three full points below the 200 day moving average, which should hold for a month even if we keep going down, which we shouldn’t. That would add (25 X 100 X $0.37) = $925, or 0.93% profit for the notional $100,000 portfolio.

The breakeven point on this trade in terms of the ten year Treasury yield is about 2.05%, or 25 basis points higher than here. It has four weeks to do this.

To execute this trade:

Sell short the September, 2012 (TLT) $116 puts at……$0.46

Buy the September, 2012 (TLT) $111 puts at………….$0.09

Net Premium Proceeds:……………….………………...$0.37

Enter this trade as a single day limit order for the entire spread, not the individual legs. If you don’t get done, work your limit up a penny at a time. Your options trading platform should allow this. That keeps you from paying a double spread. If you can’t do the spread then consider buying October or November calls options outright, or the (TLT) ETF directly.