Trade Alert - (TLT) August 20, 2021 - 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
EXPIRATION of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) August 2021 $157-$160 in-the-money vertical Bear Put spread at $3.00
Closing Trade - NOT FOR NEW SUBSCRIBERS, YOUR TURN WILL COME
8-20-2021
expiration date: August 20, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
Since we are a full eight points in-the-money with this position, I think it is safe to call this one a win. So I am going to run the P&L today so we don’t have too many positions expiring at their maximum profit points tomorrow.
Since we added this position, shares of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) have fallen by $2.50. That is miles away from the nearest $157.00 strike price for this position.
Yet, we get to take home the maximum profit in this position, such is the magic of vertical bear put debit spreads. Bets that stocks will do absolutely nothing can be immensely profitable.
As a result, you get to take home $2,000 or 20.00% in 24 trading days.
Well done and on to the next trade!
You don’t have to do anything with this expiration.
Your broker (are they still called that?) 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 23 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
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 raises. Add to that a Fed taper on monetary stimulus and interest rates will soar. At the very least, they have to stop stimulating the housing market with $40 billion a month worth of mortgage-backed securities.
With 2021 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.
To lose money on this trade, the ten-year US Treasury yield would have to have dropped below 0.90% in four weeks, which was highly unlikely.
The fundamentals of this trade are very simple. The national debt rose from a record $23 trillion to an eye-popping $28 trillion in 2020. In 2021, it is expected to explode to $32 trillion. The US Treasury demands on the bond market are going to be incredible.
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 $156.00 by the August 20 option expiration in 24 trading days.
Here is the specific accounting you need to close out this position:
EXPIRATION of 40 August 2021 (TLT) $160 puts at……......…$8.24
EXPIRATION of short 40 August 2021 (TLT) $157 puts at……$5.24
Net PROCEEDS:……………………..............………..………….….....$3.00
Profit: $3.00 - $2.50 = $0.50
(40 X 100 X $0.50) = $2,000 or 20.00% in 24 trading days.
The Fat Lady is Singing for the Bond Market
