Trade Alert - (TLT) June 16, 2022 - 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) June 2022 $124-$127 in-the-money vertical Bear Put spread at $3.00

Closing Trade

6-17-2022

expiration date: June 17, 2022

Portfolio weighting: 10%

Number of Contracts = 40 contracts

With this trade, we were able to capture one of the greatest bond market crashes of all time. The (TLT) is now a stunning $14 below our nearest strike price.

Just to be clear, this position does not expire at max profit until Friday, June 17 at the 4:00 pm EST close. But with seven positions expiring at the same time, I am going to start rolling out the accounting now, so you don’t get overwhelmed.

I think it is safe to call this one a win. As a result, you get to take home $2,000 or 20.00% in 27 trading days.

Well done, and on to the next trade.

You don’t have to do anything with this expiration.

Your broker 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, June 20 and the margin freed up.

Some firms charge you a modest $10 or $15 fee for performing this service.

When I ran the numbers on this trade, I couldn’t believe it. Bond volatility was so high that I could put on this trade $7.00 in the money and STILL make a hefty $2,000 profit.

Of course, the still-hot 8.7% CPI made this trade a huge winner.

People are not taking a 3.00% yield on the ten-year US Treasury bond against a 8.3% inflation rate generating a negative -5.30% real yield because they think it’s a great deal.

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 races. Add to that a Fed taper on monetary stimulus and interest rates will soar.

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 1.55% from the current 2.91% in four weeks, which they didn’t.

The fundamentals of this trade are very simple. The national debt rose to an eye-popping $30 trillion in 2021. In 2022, it is expected to explode to $33 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 $124.00 by the June 17 option expiration in 27 trading days.

Here are the specific trades you need to close out this position:

Expiration of 40 June 2022 (TLT) $127 puts at……….……$17.44

Expiration of short 40 June 2022 (TLT) $124 puts at……$14.44

Net Proceeds:…………………………......………..………….….....$3.00

Profit: $3.00 - $2.50 = $0.50

(40 X 100 X $0.50) = $2,000 or 20.00% in 27 trading days.

 

The Fat Lady is Singing for the Bond Market