Trade Alert - (TLT) March 22, 2022 - SELL-STOP LOSS

When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.

 

Trade Alert - (TLT) – STOP LOSS

SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT) April 2022 $127-$130 in-the-money vertical Bull Call spread at $1.60 or best

Closing Trade

3-22-2022

expiration date: April 14, 2022

Portfolio weighting: 10%

Number of Contracts = 40 contracts

Incredible as it may seem, bonds smashed through the 2.31% yield ceiling and new two-year highs. Bonds have crashed some $25 points since January and $4.00 since Friday, breaking my upper $130 strike price.

Clearly, the memo on higher interest rates is out. Jay Powell’s repeated comments that the next rate hike could be for a half point has sent the bond market into free fall for which there may be no recovery.

That forces me to stop out of my remaining long position at a loss. The good news is that this is more than covered by the seven other bond trades we have closed in 2022 that made money. Those who have bond put LEAPS, which is almost all of you, are making a fortune. It looks like my yearend target of a $2.50% ten-year yield may be hit imminently.

I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) April 2022 $127-$130 in-the-money vertical Bull Call spread at $1.60 or best.

This takes me to a rare 100% cash position. The world is in such turmoil that I am going to stay on the sidelines until we reach extremes once again, with on the upside or the downside. I have a massive 30% profit so far this year and I am going to make every effort to protect it.

The long-term outlook for fixed income is absolutely awful. The next big rotation in the markets will be for tech and bonds to peak out and for financials to bounce hard off a bottom. This will result from coming major upgrades in economic growth, which analysts and strategists are wildly underestimating.

As soon as everyone gets the parts and labor they want, it is going to be off to the races. Add to that, a Fed taper on monetary stimulus and interest rates will soar.

With 2022 expected to be one of the strongest years for economic growth in history, there is no chance you’ll see a major rally in the US Treasury bond market from here. The only question is how fast it will fall.

This trade is basically betting that interest rates will rise in front of the biggest borrowing in human history.

The fundamentals of this trade are very simple. The national debt rose to an eye-popping $30 trillion in 2021. In 2022 it is expected to explode to $33 trillion.  The US Treasury demands on the bond market are going to be incredible.

This was a bet that the (TLT) will not fall below $130.00 by the April 14 options expiration in 24 trading days.

Here are the specific trades you need to exit this position:

Sell 40 April 2022 (TLT) $127 calls at………..............…........………$3.50

Buy to cover short 40 April 2022 (TLT) $130 calls at….......………$1.90

Net Proceeds:………………………….………..…………..................….....$1.60

Loss: $2.50 - $1.60 = -$0.90

(40 X 100 X -$0.90) = -$3,600.

 

 

 

 

 

The Fat Lady is Singing for the Bond Market

 

If you are uncertain about how to execute an options spread, please watch my training video by clicking here.

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. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.

Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.

Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.