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) – TAKE PROFITS
SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December 2021 $152-$155 in-the-money vertical Bear Put spread at $2.70 or best
Closing Trade
12-9-2021
expiration date: December 17, 2021
Portfolio weighting: 20% - a double position
Number of Contracts = 80 contracts
We have just seen a nice $6.81 dive in the (TLT) over the last four days. Since I believe in never letting such a move go to waste, I am taking profits on my short position in the bond market, even though we have only six days left until the December 17 option expiration.
I bet that a week ago, you would have given your right arm to get out of this position at this price, as we were then getting run over by a massive short squeeze in the market by wrong-footed hedge funds.
Friday morning at 8:30 AM EST we get the Consumer Price Index for November, and I would rather get out of the way. We will probably get a new high in this cycle, with inflation topping 7% or more from last month’s 6.2%, which is hugely bond negative.
However, every inflation report this year has brought us a “buy the rumor, sell the news” type counter-trend move in the market and big bond rallies.
In any case, the collapse in bond prices this week puts us into a double-digit profit for this month which I am happing to take as markets start to shut down for the year. A 90% profit for the year is good enough for me and should be for you too.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December 2021 $152-$155 in-the-money vertical Bear Put spread at $2.70 or best.
As a result, you get to take home $800, or 3.85% in 13 trading days. Well done and on to the next trade!
With 70% of the US population already immune and 10% having immunity from the disease, only 20% are left to get the sickness. Eventually, ALL of them will get it, but it will not force a second shut down of the economy. The president has already said as much.
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's 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 drop below 1.35% in four weeks, which is highly unlikely.
The fundamentals of this trade are very simple. The national debt rose from a record $23 trillion to an eye-popping $30 trillion in 2021. In 2022, it is expected to explode to $34 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 was a bet that the (TLT) would not rise above $152.00 by the December 17 option expiration in 19 trading days.
Here are the specific trades you need to exit this position:
Sell 80 December 2021 (TLT) $155 puts at…………........…….......…$6.00
Buy to cover short 80 December 2021 (TLT) $152 puts at….......…$3.30
Net Proceeds:…………………………..............………..…………......….....$2.70
Profit: $2.70 - $2.60 = $0.10
(80 X 100 X $0.10) = $800, or 3.85% in 13 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.
