Trade Alert - (TLT) January 2, 2019 - SELL-TAKE PROFITS
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) – SELL-TAKE PROFITS
SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT) January 2019 $124-$127 in-the-money vertical BEAR PUT spread at $2.94 or best
Closing Trade
1-9-2019
expiration date: January 18, 2019
Portfolio weighting: 10%
Number of Contracts = 38 contracts
The Fed minutes just released minute ago show that the Fed is not as dovish as governor Jay Powell’s comments indicated only last Friday.
With 88.43% of the maximum profit in hand, I am going to skip the last seven trading days until the January 18 expiration.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) January 2018 $124-$127 in-the-money vertical BEAR PUT spread at $2.94 or best
With this exit you earned $1,292, or 13.07% during one of the worst financial panics in market history. Well done, and on to the next trade.
If you bought the ProShares Ultra Short 20 Year Plus Treasury Bond ETF (TBT) keep it. It is going much higher.
This was a bet that the (TLT) will not rise above $124 by the January 18 option expiration in 19 trading days. To lose money on these position ten-year US Treasury yields would have to drop below 2.50% very quickly. It almost did.
The fundamental reasons for this trade are growing by the day
1) Bond auctions are getting increasingly difficult to pull off. It’s just a matter of time before we get a failed auction that completely crashes the bond market. The government has to issue a staggering $1.4 trillion in bonds next year to cover massive deficit spending.
2) The Fed has already started dropping on the bond market in $50 billion a month, or $1.6 billion a day, worth of paper in its QE unwind.
3) Tax cuts are providing further stimulus for the US economy, so is the NAFTA renewal. The economic data is running red hot.
4) We also now have evidence that China has started to dump it’s massive $1 trillion in US Treasury bond holdings, or at least boycotting new auctions.
All are HUGELY bond negative.
That should take bond prices down to new 2018 lows and yields to new highs. What we could be seeing here is the setting up for the perfect head and shoulders top of the (TLT) for 2018.
Here are the specific trades you need to execute this position:
Sell 38 January 2019 (TLT) $127 puts at………….………$6.00
Buy to cover short 38 January 2019 (TLT) $124 puts at……$3.06
Net proceeds:………………………….………..………….….....$2.94
Profit: $2.94 - $2.60 = $0.34
(38 X 100 X $0.34) = $1,292 or 13.07%.
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.
