Trade Alert - (TLT) August 19, 2022 - EXPIRATION AT MAX PROFIT

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) – EXPIRATION AT MAX PROFIT

EXPIRATION of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) August 2022 $123-$126 in-the-money vertical Bear Put spread at $3.00

Closing Trade

8-19-2022

expiration date: August 19, 2022

Portfolio weighting: 10%

Number of Contracts = 40 contracts

We have yet another home run on the long side with Friday, August 19 expiration.

The United States Treasury Bond Fund (TLT)  (BRKB) is now trading at an amazing $113.03, or 10.29% away from our farthest $126 strike price. Time to ring the cash register once again.

Just to be clear, this position does not expire at Max profit until Friday, August 19 at the 4:00 EST close.

I think it is safe to call this one a win. As a result, you get to take home $1,600 or 16.00% in 21 trading days.

Well done, and on to the next trade.

You don’t have to do anything with this expiration.

Your broker will automatically use your long position to cover your short position, canceling out the total holdings.

The entire profit will be credited to your account on Monday morning, August 22 and the margin freed up.

Some firms charge you a modest $10 or $15 fee for performing this service.

To lose money on this trade the ten-year US Treasury yield would have to have dropped to below 2.63% in 21 trading days, which didn’t happen.

Treasury bonds have in fact been in a steep downtrend that began in end of November.

The long-term outlook for fixed income is absolutely awful. The next big rotation in the markets will be for tech and 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 quantitative tightening on monetary stimulus and interest rates will soar.

With 2022 the Fed on an announced path of at least 100 basis point more in interest rate rises, 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.

It is almost mathematically impossible for bond prices to rise and interest rates to fall substantially from here. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me.

This is a bet that the (TLT) will not rise above $123.00 by the August 19 option expiration in 21 trading days.

Here is the specific accounting you need to close out this position:

Expiration of 40 August 2022 (TLT) $126 puts at……..…$12.97
Expiration of short 40 August 2022 (TLT) $123 puts at…$9.97
Net Proceeds:………….............……….………..………….….....$3.00

Profit: $3.00 - $2.60 = $0.40

(40 X 100 X $0.40) = $1,600 or 16.00% in 21 trading days.

 

 

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.