Trade Alert – (TLT) September 10, 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 Sell Short position in the (TLT) October $132-137 call spread at $0.18 or best

Closing Trade

9-10-2012

expiration date: 10-19-2012

Portfolio weighting: 10% on a delta basis

($10,000/100/$0.18) = 50 Contracts

When the market hands me a gift, I’m inclined to take it. Since I sold short the (TLT) October $132-137 call spread three trading days ago, it has plunged from $0.58 to $0.18, a drop of 69%.

That means I can take the bulk of the profit on this trade without having to run it all the way out until the October 19 expiration. It also means I can dump all of my fixed income risk going into the Federal Reserve Open Market Committee meeting on Wednesday.

If I am wrong, and the Fed acts decisively, the bonds could easily gap up five or more points. They could do this by announcing QE3, or a ramped up Treasury bond buying program designed to keep interest rates low. You don’t want to be short bonds in any way, shape, or form in such a scenario.

To execute this trade:

Buy to cover your short 50 October, 2012 (TLT) $132 calls at……$0.28

Sell 50 October, 2012 (TLT) $137 calls at……………………….….$0.10

Net Cost:………………………………….……………..…………….$0.18

Profit = $0.58 – $0.18 = $0.40

(50 X 100 X $0.40) = $2,000, or 2.00% for you notional $100,000 portfolio.

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.

Please note that this is the 20th consecutive profitable closing position for the Trade Alert Service.