Trade Alert - (TLT) May 29, 2018 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, 2018 $120-$123 in-the-money vertical BEAR PUT spread at $2.10 or best
Closing Trade
5-29-2018
expiration date: June 15, 2018
Portfolio weighting: 10%
Number of Contracts = 38 contracts
The reason you are losing money on this trade this morning is because of the political crisis in Italy. There is a risk that the new government will take Italy, the third largest economy in Europe, out of the European Community and pull out of the Euro.
This has triggered a global 'RISK OFF" move, including a sharp selloff in stock markets (SPY), the collapse of the Euro (FXE) and a rocketing US dollar (UUP) and bond market (TLT).
Overnight, the yield on the ten-year US Treasury bond traded as low as 2.80%. To see yields this low is insane with the Federal Reserve ready to raise interest rates in three weeks. However, markets can remain irrational longer than you can remain liquid.
I can't remember the last time markets cared about what happened in Europe. It was probably the first Greek debt crisis in 2011. But they care today.
We have substantial profits this year to protect and I want to keep it this way.
I am there stopping out of my position and selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) June, 2018 $120-$123 in-the-money vertical BEAR PUT spread at $2.10 or best. We have broken my 2% of capital loss rule and the risk/reward is no longer favorable, so I am out of here.
Let this be a lesson on how to lose money correctly. The position is small, only 10% of my portfolio. Going in I hedged my short option leg with a long one. Furthermore, the short bond position is additionally hedged with a short equity one (SPY) which is doing swimmingly today.
As a result, this loss is no more than a pinprick on our P&L, and we live to fight another day. If you were wondering why I was issuing so few Trade Alerts in May this is the reason. Traders are extremely nervous, global uncertainty is high, and Washington is s ticking time bomb.
Here are the specific trades you need to execute this position:
Sell 38 June, 2018 (TLT) $123 puts at......................$2.80
Buy to cover short 38 June, 2018 (TLT) $120 puts at.............$0.70
Net Proceeds:............................................................$2.10
Loss: $2.65 - $2.10 = $0.55
(38 X 100 X $0.55) = $2,090 or 20.75%.
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.