Follow Up to Trade Alert - (TLT) November 8, 2013

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.

Further Update to: Trade Alert -(TLT)

Sell the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December $109-$112 bear put spread at $2.90 or best

Closing Trade

11-8-2013

expiration date: 12-20-2013

Portfolio weighting: 10%

Number of Contracts = 38 contracts

You just can?t keep America down. That is the overwhelming message from this morning?s blockbuster October nonfarm payroll showing that 204,000 jobs were added, double the industry forecasts. The headline unemployment rate ratcheted back up from 7.2% to 7.3%, the first gain in many months.

August and September were revised up an eye popping 60,000 jobs. October private sector job growth came in at a sunning 212,000. Apparently, the prospect of an imminent default by the US government prompted many corporate managers to rush out and hire! Go figure.

Without the Washington shutdown we probably would have seen a 300,000 print. It appears that 223,000 federal workers were temporarily laid off, but later received back pay, so they weren?t counted as jobless.

Leisure and hospitality was up an unbelievable 53,000. Retail added 44,000. Professional and technical services tacked on 21,000. Health care increased by 12,000 jobs, anticipating an onslaught of 30 million new customers with government guaranteed payments, thanks to Obamacare.

It confirms what I have been arguing since the summer, that the US economy is far stronger than anyone suspects, and that we are accelerating with an upward trajectory. This is the recurring theme that I get from speaking to dozens of CEO?s every month, whose views usually beat the government data releases by 3-6 months.

Of course, the initial market reaction was negative, as the good news is seen as advancing the Federal Reserve?s tapering of its quantitative easing program. This was certainly the read in the stock market yesterday, when a surprise interest cut in the Euro and a blistering 2.8% Q3 GDP report triggered a 150 sell off in the Dow. Gold took it on the nose again, dropping $25.

Bonds really took it in the keister, the (TLT) dropping two full points, bumping ten year Treasury yield up from 2.60% to 2.72%, one of the most extreme pops of the year. I came within a hair?s breadth of doubling my bond shorts yesterday, but decided to wait for the payroll report.

So I am going to take profits here on the iShares Barclays 20+ Year Treasury Bond Fund December $109-$112 bear put spread that I strapped only last Tuesday. At this morning?s prices I can capture 75% of the maximum potential profit.

It is not worth running the risk all the way until December 20 just to take in a further stinking 38 basis points. Better to wait for the inevitable 7 point drop in ten year Treasury bond yields, and then put the same position back on for more money.

My view articulated in my Wednesday global strategy webinar that the bond market yields are moving back to the top of a 2.50%-3.0% range by early 2014 is unfolding right on schedule.

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.
Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months further out.

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

Sell 38 December, 2013 (TLT) $112 puts at?????..?$8.40
Buy to cover short 38 December, 2013 (TLT) $109 puts a....?$5.50

 

Net Proceeds:????????????....??..??.......$2.90

Profit: $2.90 - $2.60 = $0.30

($0.30 X 100 X 38) = $1,140, or 1.14% for the notional $100,000 model portfolio.