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 $174-$177 in-the-money vertical Bear Put spread at $2.98 or best
Closing Trade
5-6-2020
expiration date: May 15, 2020
Portfolio weighting: 10%
Number of Contracts = 38 contracts
Since April 17, I have initiated seven consecutive bond trades, all of which have become immediately profitable. As a result, we have added 11.07% to our 2020 performance.
It is one of the most aggressive postures in the market I have ever taken, but then, this is one of the cleanest trades I have ever seen.
The fundamentals of this trade are very simple. With the national debt already rising from a record $24.3 trillion to an eye-popping $32 trillion by the end of 2020, the US Treasury demands on the bond market are going to be incredible. Debt to GDP now stands at 113% but will rocket to 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.
And right in the middle of the Treasury’s attempt to raise a blockbuster $3 trillion in new debt in Q2, the president threatens a default. It is short-sellers' dream come true.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) May 2020 $174-$177 in-the-money vertical Bear Put spread at $2.98 or best. This gives a triple weighting in our net short in the bond market.
By coming out here, you get to earn $1,444 or 14.61% in 5 trading days. You will be harvesting 87.5% of the maximum potential profit. The risk/reward of continuing is no longer favorable.
If you have the ProShares Ultra Short 20 Year Plus Treasury Bond ETF (TBT) outright, keep it for greater price gains.
This was a bet that the (TLT) will not rise above $174.00 by the May 15 option expiration in 10 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 38 May 2020 (TLT) $177 puts at……...............…….………$14.00
Buy to cover short 38 May 2020 (TLT) $174 puts at……..……$11.02
Net Proceeds:………………...........………….………..………….….....$2.98
Profit: $2.98 - $2.60 = $0.38
(38 X 100 X $0.38) = $1,444 or 14.61% in 5 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.
