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) – BUY
BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT) August 2019 $137-$140 in-the-money vertical BEAR PUT spread at $2.70 up to $2.80
Opening Trade
8-1-2019
expiration date: August 16, 2019
Portfolio weighting: 10%
Number of Contracts = 37 contracts
Fed Governor Jay Powell has shot his wad, cutting interest rates for the first time in 12 years, and indicating he is “one and done”. At least half the market was expecting that this was to be a guaranteed beginning of at least a three-rate cut cycle, and possibly more.
It was a totally political cut. If the Fed were data-dependent as they claim, they wouldn’t have budged yesterday. We now have the most politically-driven Fed in its 106-year history.
However, a five-point pop in bond prices in two days is quite a lot to digest. It will take a while for the python to swallow this pig. The presidents ramp up in the trade war against China a few minutes ago just gave us an extra point, imposing 10% tariffs on $300 billion worth of goods effective September 1.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) August 2019 $137-$140 in-the-money vertical BEAR PUT spread at $2.70 or best
Don’t pay more than $2.80 or the risk/reward will go against you.
This is a bet that the (TLT) will not trade above $137 by the August 16 option expiration day in 12 trading days. That is a full two points above current levels. It is also a bet that ten-year US treasury bond yields will not fall below 1.80% by mid-August from today’s 1.92%.
If you don’t do options, stand aside. We are close to the top of a new range and it is too late to go long or short.
You still want to be buying major dips in the bond market, as the bull market should continue well into 2020, thanks to exploding global liquidity.
Since 2008, major central bank balance sheets have exploded from $3 trillion to $16 trillion, and there is nowhere better for this mountain of money to go but the ten-year US Treasury bond. Yields have matched the four-year low at 1.95% and are headed to 1.40% by yearend.
Here are the specific trades you need to execute this position:
Buy 37 August 2019 (TLT) $140 puts at…………..………$5.30
Sell short 37 August 2019 (TLT) $137 puts at……………$2.60
Net Cost:………………………….………..………….….............$2.70
Potential Profit: $3.00 - $2.70 = $0.30
(37 X 100 X $0.30) = $1,110 or 11.11% in 12 trading days.
To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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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 close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
