Trade Alert - (TLT) January 22, 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) – SELL-TAKE PROFITS

SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT) February 2019 $125-$128 in-the-money vertical BEAR PUT spread at $2.92 or best

Closing Trade – NOT FOR NEW SUBSCRIBERS

1-22-2019

expiration date: February 15, 2019

Portfolio weighting: 10%

Number of Contracts = 40 contracts

I established this position when there was an out and out short covering panic in the bond market today as fears of a continuing government shutdown roiled the markets.

The Ten-year US Treasury bond yield had plunged 63 basis points from the 3.25% high, taking it down to a six-month low at 2.62%. Yields were inverting everywhere.

It turns out that panics are a great time to sell short the bond market. Complacency is a better time to cover those shorts.

Therefore, I am selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) February 2019 $125-$128 in-the-money vertical BEAR PUT spread at $2.92 or best.

Buy coming out here you get to harvest 84% of the maximum potential profit in this position without having to wait 19 more days until the February 15 options expiration. You also get to book a profit of $1,680 or 16.80% in 15 trading days.

Well done, and on to the next trade.

If you don’t do options and bought the ProShares UltraShort 20 Year Plus Treasury Bond ETF (TBT) take profit as well.

This was a bet that the (TLT) would not rise above $125.00 by the February 15 option expiration in 29 trading days. To lose money on this position ten-year US Treasury yields would have to drop below 2.40% very quickly. That was a bet I was willing to make.

The fundamental reasons for this trade are growing by the day, so I will be back in on the next pop in prices.

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 $1.6 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. A trade deal with China will crush this market.

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 2019 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 2019.

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

Sell 40 February 2019 (TLT) $128 puts at………….………$8.00

Buy to cover short 40 February 2019 (TLT) $125 puts at…$5.08
Net Proceeds:………………………….………..………….….....$2.92

Profit: $2.92 - $2.50 = $0.42

(40 X 100 X $0.42) = $1,680 or 16.80% in 15 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.

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