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 $176-$179 in-the-money vertical Bear Put spread at $2.95 or best
Closing Trade
5-4-2020
expiration date: May 15, 2020
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I am going to use the one-point dive in bond prices this morning to cut back my huge short position there. In a mere nine trading days, we have managed to collapse of nice four-point collapse in bond prices.
By coming out here, you get to earn 90% of the maximum potential profit. The risk/reward of continuing is no longer favorable. Ringing the cash register, you get to earn $1,800 or 18% in 9 trading days.
The fundamentals of this trade are very simple. With the national debt already rising from a record $23 trillion to an eye-popping $32 trillion by the end of 2010, the US Treasury demands on the bond market are going to be incredible. Debt to GDP now stands at 113% but will rocket by 147% by next year.
It is almost mathematically impossible for bond prices to rise. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me. This could be the start of the greatest short play in history.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2020 $176-$179 in-the-money vertical Bear Put spread at $2.95 or best. This cuts our net short in the bond market from 40% back down to 30%.
If you can’t get done at this price today, then keep re-entering it every day until you are. Alternatively, you can capture the full $3.00 value by running it into the May 15 option expiration in nine trading days.
If you bought the ProShares Ultra Short 20 Year Plus Treasury Bond ETF (TBT), keep it for more declines in bond prices.
This was a bet that the (TLT) will not rise above $176.00 by the May 15 option expiration in 18 trading days. To lose money on this position ten-year US Treasury yields would have to approach near 0.30%.
Here are the specific trades you need to exit this position:
Sell 40 May 2020 (TLT) $179 puts at………….…............……$12.00
Buy to cover short 40 May 2020 (TLT) $176 puts at…………$9.05
Net Proceeds:………………………….…........……..………….….....$2.95
Profit: $2.95 - $2.50 = $0.45
(40 X 100 X $0.45) = $1,800 or 18% in 9 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.
