Trade Alert - (TLT) May 8, 2020

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) – BUY

BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT) June 2020 $170-$175 in-the-money vertical Bear Put spread at $4.00 or best

Opening Trade

5-8-2020

expiration date: June 19, 2020

Portfolio weighting: 10%

Number of Contracts = 26 contracts

Investors are increasingly becoming convinced that we are on the eve of a great inflation, prompted by the massive spending that will be hitting the economy in coming months.

Who am I to argue?

My target for the (TLT) is to crash from the current $165.32 all the way down to $105. Yes, ten-year yields could rocket from 0.66% to 3.25% even if the Fed keeps overnight rates near zero, because the Fed has absolutely no control over long term interest rates.

I’m sorry, but one of the best trades in years is worth pursuing to the ends of the earth.

This time, I am increasing my short position with a longer-dated six-week play on the June option expiration with strike prices $5 closer to the money than the last bunch. Yes, this is a much more aggressive short position.

We have already made huge profits in our bond shorts which I plan to add to.

Bond option volatilities are still spectacularly high, offering ample opportunities to make money with vertical bear put spreads.

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 2020, the US Treasury demands on the bond market are going to be incredible.

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.

I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) June 2020 $170-$175 in-the-money vertical Bear Put spread at $4.00 or best.

Don’t pay more than $4.40 or you’ll be chasing.

If you don’t do options, buy the ProShares Ultra Short 20 Year Plus Treasury Bond ETF (TBT) outright for a medium term investment.

This is a bet that the (TLT) will not rise above $170.00 by the June 19 option expiration in 34 trading days. To lose money on this position, ten-year US Treasury yields would have to approach 0.35%.

Here are the specific trades you need to execute this position:

Buy 26 June 2020 (TLT) $175 puts at………….………$12.00

Sell short 26 June 2020 (TLT) $170 puts at……..……$8.00

Net Cost:…………………….....…….………..………….….....$4.00

Potential Profit: $5.00 - $4.00 = $1.00

(26 X 100 X $1.00) = $2,600 or 25.00% in 29 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 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.

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