Trade Alert - (TLT) May 1, 2020 - SELL-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) May 2020 $177-$180 in-the-money vertical Bear Put spread at $2.98 or best
Closing Trade – NOT FOR NEW SUBSCRIBERS
5-1-2020
expiration date: May 15, 2020
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I am not inclined to sit on huge unrealized profits.
The bond market crashed yesterday on a Trump threat to default on US Treasury bonds, of which China owns $900 billion worth. It’s Trump’s retaliation for the Middle Kingdom spawning the Coronavirus, which he calls the “Chinese virus.”
The (TLT) dropped three points on the news. Good thing I am triple short a market that is about to get crushed by massive government borrowing.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2020 $177-$180 in-the-money vertical Bear Put spread at $2.98 or best.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.
If you can’t get done at $2.98, lower your offer to $2.95, but don’t go any lower than that. Under $2.95, you are better off running the position into expiration in ten trading days.
The reason for coming out at all is to have dry powder in case we get another three-point rally with which you can re-establish this position.
Buy coming out here, you get to earn a monster $1,920 or 19.2% in only 10 trading days in a falling market.
This was a bet that the (TLT) will not rise above $177.00 by the May 15 option expiration in 19 trading days. To lose money on this position, ten-year US Treasury yields would have to approach 0%.
Here are the specific trades you need to exit this position:
SELL 40 May 2020 (TLT) $180 puts at…….…….……..........…$13.00
Buy to cover short 40 May 2020 (TLT) $177 puts at…..………$10.02
Net Proceeds:………………………….………....…………..........….....$2.98
Profit: $2.98 - $2.50 = $0.48
(40 X 100 X $0.48) = $1,920 or 19.2% in 10 trading days.
To see how to enter this trade in your online platform, please look at the order ticket below, 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 a Vertical Bear Put Spread” 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.