Trade Alert – (TLT) July 31, 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)

Buy to Cover the short position in the August, 2012 (TLT) $136-$141 call spread at $0.16 or best

Closing Trade


expiration date: August 17, 2012

Portfolio weighting: 15% = 38 contracts

I am going to take the gift that ECB president Mario Draghi gave me last week and take profits on my short position in the August, 2012 (TLT) $136-$141 call spread. I think his bark is worse than his bite, and when the market figures this out, bonds will soar and our short call spread will suffer.

This is a bet that the (TLT) would not trade over $136.39 by the August 17 expiration. That equates to a yield on the ten year Treasury bond of about 1.15%, which would be a new 60-year low, and quite a distance from here. Thanks to Mr. Mario’s murmurings, the (TLT) fell 5 ½ points from its mid-week peak, delivering our instant profit.

We also have plenty of reasons to neutralize and deleverage our portfolio today. This week offers a cavalcade of potentially market moving events, including Wednesday’s Federal Reserve Open Market Committee meeting, the ECB and weekly jobless claims on Thursday, and the July nonfarm payroll on Friday.

If we get a 5 points spike back up to the highs, which is entirely possible if Ben Bernanke fails to deliver QE3 on Wednesday, I may well slap this baby back on to take advantage of the 1.15% breakeven point on the 10 year Treasury bond.

Your total profit should amount to (38 X 100 X $0.23) = $874, or 0.87% for the notional $100,000 model portfolio. That is not a bad return for a limited risk bet over four trading days.

Don’t place a market order for this trade or the floor traders will rip your eyes out. Instead, place a limit day order in the middle market. If nothing happens then start raising your bid in penny increments until something happens. These are the trades you should execute:

Buy to cover the August, 2012 (TLT) $136 calls at…...$0.22

Sell the August, 2012 (TLT) $141 calls at………….… $0.06

Net Debit:……….………………………………………$0.16