Trade Alert – (TLT) Stop Loss Triggered, December 12, 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)-Stop Loss Triggered

Sell the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December, 2012 $117-$122 call spread at $4.50 or best

Closing Trade


expiration date: December 21, 2012

Portfolio weighting: 10% = 21 contracts

The Fed’s announcement today about the expansion of QE3 is a game changer. Inflationary risks have just been ratcheted up. That means bailing on any long bond exposure. The risk/reward for the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December, 2012 $117-$122 call spread has taken a sudden turn for the worse. I’ll go into more depth on why in my letter tomorrow.

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. This alert is for the monthly options. Don’t buy the weeklies by accident. The difference between the bid and the offer on these spread trades can be enormous. Don’t buy the legs individually or you will end up losing much of your profit up front. If you don’t get filled, then just wait for the next Trade Alert. There will be many fish in the sea.

The same applies if you don’t understand this trade. Better to watch this strategy unfold on paper in the model portfolio before you try it with real money.

Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months farther out. These are the trades you should execute:

Sell 21 December, 2012 (TLT) $117 calls at……………..……$6.00
Buy to cover short 21 December, 2012 (TLT) $122 calls at…..$1.50
Net Proceeds:…………………….………………….………......$4.50

Loss: $4.75 - $4.50 = $0.25

(21 X 100 X -$0.25) = -$525, or -0.53% profit for the notional $100,000 portfolio for a three month position.