Trade Alert - (TLT) February 8, 2019

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) March 2019 $126-$129 in-the-money vertical BEAR PUT spread at $2.40 or up to $2.60

Opening Trade

2-8-2019

expiration date: March 15, 2019

Portfolio weighting: 10%

Number of Contracts = 80 contracts-DOUBLE POSITION

I am using the 3 1/2 point dead cat bounce off the recent bottom in the US Treasury bond market to add a double short position in the bond market. The rally has been prompted by fears today that the China trade talks will fail and that tariffs will be raised sharply, triggering a global recession.

Specifically, I am buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) March 2019 $126-$129 in-the-money vertical BEAR PUT spread at $2.40 or up to $2.60. If you can’t get done at $2.40, cancel your order and then raise your bid 10 cents at a time until you get done.

Don’t pay more than $2.60 for this position or the risk/reward will tip against you.

This is a bet that the (TLT) will not rise above $126.00 by the March 15 expiration day. That would require ten-year US Treasury bonds to fall below 2.40%, a three-year low, versus the current 2.63%. That is highly unlikely given all the stimulus that is out there in the economy.

The fundamental reasons for this trade are growing by the day.

1) Resolution of the China trade war will provide a short burst of economic growth, even if it doesn’t happen by March 1.

2) The Fed is dropping on the bond market $50 billion a month, or $1.70 billion a day worth of paper in its QE unwind.

3) Massive Tax cuts for corporations are still providing further stimulus for the US economy.

4) With the foreign exchange markets now laser-focused on America’s exploding deficits and fading interest rate picture, a weak US dollar has triggered a capital flight out of the US.

5) We also now have evidence that China has started to dump it’s massive $1 trillion in US Treasury bond holdings.

All are HUGELY bond negative.

To lose money on this position the (TLT) would have to rise above $126, and yields would have to drop below 2.40%, which they absolutely won’t ahead of a new deluge of bond selling from the Fed.

If you don’t do options, this would be a great level to scale into a long in the ProShares Ultra Short 20+ Treasury Bond Fund (TBT), a bet that bonds will fall.

Here are the specific trades you need to execute this position:

Buy 80 March 2019 (TLT) $129 puts at………….………$7.25

Sell short 80 March 2019 (TLT) $126 puts at………….$4.85
Net Cost:………………………….…………..………….….....$2.40

Potential Profit: $3.00 - $2.40 = $0.60

(80 X 100 X $0.60) = $4,800 or 25% in 25 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.

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