Follow Up to Trade Alert - (TLT) March 3, 2014
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. This is your chance to ?look over? John Thomas? shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen.
Further Update to: Trade Alert -(TLT)
Buy the iShares Barclays 20+ Year Treasury Bond Fund (TLT) March, 2014 $111-$114 bear put spread at $2.69 or best
Opening Trade
3-3-2014
expiration date: 3-21-2014
Portfolio weighting: 10%
Number of Contracts = 37 contracts
There is a layup of a trade setting up here in the wake of the escalating crisis in the Ukraine. Since January 2, the (TLT) has enjoyed a massive 8 point rally, taking the ten year yield from 3.05% to 2.60%.
By taking on the iShares Barclays 20+ Year Treasury Bond Fund March, 2014 $111-$114 bear put spread, you are betting that the yield doesn?t drop below 2.48% by March 21, a seven month low. That is only 13 trading days away.
Giving rising corporate earnings across a broad range of industries, the chances of this are minimal.
To get below this level in yields, you really need an out and out shooting war in the Ukraine. All of my contacts in Russia tell me that the chances of this happening are nil. Russia has such an overwhelming military advantage that this is a conflict that will be solved by writing checks, and not pulling triggers.
I will go into much more detail into why this is the case in tomorrows letter, when I have some time. In the meantime, get your orders in.
Don?t forget that we have a February nonfarm payroll on Friday, which in recent months have been relentlessly disappointing. Therefore, I expect bonds to go nowhere for the rest of the week. That alone provides 30% of the time decay for this position.
This is all a warm up for a much bigger trade that I am planning, a 10% weighting in the (TLT) June $108 puts outright, which last traded at $2.75. If the (TLT) returns to the $101 bottom, this could be an easy triple, and one of our biggest trades of the year. But you don?t want to consider this until we go over the top on the (TLT) on the charts, and the downside momentum resumes.
The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the trade to come to you. The middle market is the halfway point between the bid and the offered prices that you see on your screen with your online broker.
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. Keep in mind that these are ballpark prices only. Spread pricing can be very volatile especially on expiration months farther out.
Here are the specific trades you need to execute this position:
Buy 37 March, 2014 (TLT) $114 puts at?????..?$5.15
Sell short 37 March, 2014 (TLT) $111 puts at????$2.46
Net Cost:????????????....??..??.......$2.69
Potential Profit: $3.00 - $2.69 = $0.31
($0.31 X 100 X 37) = $1,117 or 1.15% for the notional $100,000 model portfolio.
