Trade Alert - (TLT) June 8, 2021 - SELL-STOP LOSS

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) – STOP LOSS

SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT) June 2021 $141-$144 in-the-money vertical Bear Put spread at $2.40 or best

Closing Trade

6-8-2021

expiration date: June 18, 2021

Portfolio weighting: 10%

Number of Contracts = 40 contracts

The bond market crash has taken a vacation.

After a dramatic $25 plunge in January and February, the (TLT) has been trapped in a nine-point range for the last three months and could remain there for another three months. This is happening for the following reasons.

1) The Consumer Price Index is out at 8:30 EST on Thursday and shorts are rushing to cover in case we get a soft number.

2) Republican opposition has shrunken and delayed the infrastructure bill, cutting government borrowing by at least $1 trillion.

3) The Fed has given no indication as to when it might tapper its $120 billion worth of bond buying.

4) With ten-year yields at 1.53%, the government isn’t borrowing too much money, IT IS NOT BORROWING ENOUGH!

We have major profits to protect, so I am stopping out early on this one, even though we only have eight trading days to expiration.

I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) June 2021 $141-$144 in-the-money vertical Bear Put spread at $2.40 or best.

With 2021 already 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 $141.00 by the June 18 option expiration in 21 trading days.
Here are the specific trades you need to exit this position:

Sell 40 June 2021 (TLT) $144 puts at……….............….………$4.00
Buy to cover Short 40 June 2021 (TLT) $141 puts at…………$0.60
Net Proceeds:………………………….………...........………….….....$2.40

Loss: $2.60 - $2.40 = $0.20

(40 X 100 X $0.20) = $800.

 

 

 

The Fat Lady is Singing for the Bond Market

 

If you are uncertain about how to execute an options spread, please watch my training video by clicking here.

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 on expiration months farther out.

Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.