Trade Alert - (TLT) December 18, 2020 - TAKE PROFITS-EXPIRATION
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-TAKE PROFITS
EXPIRATION of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December 2020 $148-$151 in-the-money vertical bull call spread at $3.00
Closing Trade
12-18-2020
expiration date: December 18, 2020
Portfolio weighting: 10%
Number of Contracts = 40 contracts
This options call spread does not expire for one more day.
However, I have a record eight positions going into the Friday, December 18 option expiration so I am going to start closing these out early so as not to overload you, or my back office.
As long as the (TLT) does not fall by more than $7.49 by the Friday close, the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December 2020 $148-$151 in-the-money vertical bull call spread will expire at $3.00.
As a result, you get to take home $1,600, or 15.38% in 12 trading days. Well done and on to the next trade.
This has been a dream of a position because along with our other short position in bonds, it was a bet that bonds would neither go up OR down. That is exactly what has happened for the past two weeks, with the bond market flatlining.
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 December 21 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
The fundamentals of this trade are very simple. With the national debt already rising from a record $23 trillion to an eye-popping $30 trillion by the end of 2020, the US Treasury demands on the bond market are going to be incredible.
It is almost mathematically impossible for bond prices to rise 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 was a bet that the (TLT) would not fall below $151.00 by the December 18 option expiration in 12 trading days. To lose money on this position, ten-year US Treasury yields would have to approach 1.10%, which isn’t going to happen until 2021.
Here is the specific accounting you need to close out this position:
EXPIRATION of 40 December 2020 (TLT) $148 calls at…....……$10.49
EXPIRATION Sell short 40 December 2020 (TLT) $151 calls at…$7.49
Net Proceeds:…………………………..…..........................……….….....$3.00
Profit: $3.00 -$2.60 = $0.40
(40 X 100 X $0.40) = $1,600, or 15.38% in 12 trading days.
The Fat Lady is Singing for the Bond Market
