Trade Alert - (TLT) March 20, 2018 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) ? TAKE PROFITS
SELL the iShares Barclays 20+ Year Treasury Bond Fund (TLT)April, 2018 $124-$127 in-the-money vertical BEAR PUT spread at $2.95 or best
Closing Trade
3-20-2018
expiration date: April 20, 2018
Portfolio weighting: 10%
Number of Contracts = 38 contracts
Since I added this position two trading days ago, the bond market has dropped nearly two full points.
I don?t know why this is such a surprise for people, but bonds always sell off going into a Fed interest rate hike, which will happen on Wednesday at 2:00PM EST.
At this morning?s prices we now have 87.5% of the maximum potential profit of this position. The risk/reward of going on for 23 more trading days is no longer favorable.
Better to raise cash here so you can sell again in to the next two point rally.
I am therefore selling my position in the iShares Barclays 20+ Year Treasury Bond Fund (TLT) April, 2018 $124-$127 in-the-money vertical BEAR PUT spread at $2.95 or best.
By coming out here you can earn a 13.46% profit in only two trading days
This was a bet that the (TLT) would not rise above $124 by the April 20 options expiration days in 25 trading days.
For this to happen, the ten-year Treasury bond yield would have to have dropped below 2.60%. With the stock market crash now behind us there is no way this was going to happen.
The fundamental reasons for this trade are growing by the day.
1) The Global Synchronized Recovery is accelerating.
2) The Fed will start dropping on the bond market in the very near future $6 billion a month, or $200 million a day, worth of paper in its QE unwind.
3) It is widely perceived that tax cuts will provide further stimulus for the US economy.
4) With the foreign exchange markets no laser focused on America?s exploding deficits, a weak US dollar has triggered a capital flight out of the US.
5) We also now have evidence that China has started to dump it?s massive $1 trillion in US Treasury bond holdings. The prospects of a trade war will further turn them off of Treasury bond buying.
All are HUGELY bond negative.
That should take bonds down to new 2018 lows.
Here are the specific trades you need to exit this position:
Sell 38 April, 2018 (TLT) $127 puts at????.???$8.25
Buy to cover short 38 April, 2018 (TLT) $124 puts at??.$5.30
Net Proceeds:????????????..????.?.....$2.95
Profit: $2.95 - $2.60 = $0.35
(38 X 100 X $0.35) = $1,330 or 13.46% in 2 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.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
