Trade Alert - (TLT) July 16, 2021 - EXPIRATION AT MAX PROFIT
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 AT MAX PROFIT
EXPIRATION of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) July 2021 $152-$155 in-the-money vertical Bear Put spread at $3.00
Closing Trade - NOT FOR NEW SUBSCRIBERS, YOUR TURN WILL COME
7-16-2021
expiration date: July 16, 2021
Portfolio weighting: 10%
Number of Contracts = 40 contracts
By belief that US interest rates would rise and that bond process would fall two weeks ago proved premature.
Since we added this position, shares of the United States Treasury Bond Fund (TLT) have risen by $1.88.
However, we are still miles away from the nearest $152.00 strike price for this position.
So, we still get to take home the maximum profit in this position, such is the magic of vertical bull call debit spreads.
As a result, we are now a very safe $2.90 cushion to take us into the option expiration at the end of today. I think it’s safe to call it a win. Therefore, you will get to take home $720 or 6.38% in 8 trading days.
Well done and on to the next trade!
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 July 19 and the margin freed up.
Some firms charge you a modest $10 or $15 fee for performing this service.
We have just rallied an eye-popping $18.00 off of the recent $132.20 low for the (TLT). That has taken ten-year US Treasury yields down from 1.76% to 1.20% in three months.
The 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.
The memo is out now. Bonds have already dropped $25 in early 2021 and the worst is yet to come. This is becoming a one-way trade. Therefore, I will be selling even small rallies, like the one we just saw.
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.
The fundamentals of this trade are very simple. The national debt rose from a record $23 trillion to an eye-popping $28 trillion in 2020. In 2021, it is expected to explode to $32 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 July 16 option expiration in 8 trading days.
Here are the specific trades you need to exit this position:
EXPIRATION of 40 July 2021 (TLT) $155 puts at……...…….…$6.89
EXPIRATION of short 40 July 2021 (TLT) $152 puts at………$3.89
Net Proceeds:………………….………....................………….….....$3.00
Profit: $3.00 - $2.82 = $0.18
(40 X 100 X $0.18) = $720 or 6.38% in 8 trading days.
The Fat Lady is Singing for the Bond Market
