Trade Alert - (TLT) November 17, 2017

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) EXPIRATION AT MAXIMUM PROFIT

Expiration of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November, 2017 $127-$129 in-the-money vertical BEAR PUT spread at $2.00

Expired??

11-17-2017

expiration date: November 17, 2017

Portfolio weighting: 10%

Number of Contracts = 56 contracts

Since I added this short position 12 trading days ago, bonds have risen nearly three points, when I expected them to go down.

However, because of the risk controlling structure of the bear put spread, the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November, 2017 $127-$129 in-the-money vertical BEAR PUT spread expired at its maximum potential profit of $2.00.

That enabled followers to earn a 12.35% profit in only 12 trading days.

ALL of the money was made through time decay of the short $127 leg.

I love strategies that make money, even when I'm wrong. While bonds went up, they did not go up enough to knock this positon out of the money.

I am still maintaining my December short position in the bond market.

We have some seriously bond impacting moves right in front of us.

Those would include the naming of a new Fed governor and the fact that risk assets globally are at generational valuation and momentum highs.

After equities, bonds have been my most profitable asset class in 2017.

The value of dry powder going into the next price spike cannot be underestimated.

The fundamental reasons for this trade, which has been writing me a check almost every month this year, are still there.

1) The global synchronized recovery is accelerating.

2) Fed governor Janet Yellen plans to start dropping on the bond market in the very near future $6 billion a month, or $200 million a day, worth of paper in her quantitative easing unwind.

3) It is widely perceived that potential tax cuts will provide further stimulus for the US economy.

4) Global QE will come to an end in October, 2018 and central banks will start to drain global liquidity.

All are HUGELY bond negative.

That should take bonds down to new lows in 2018. What we could be seeing here is the setting up for the perfect head and shoulders top of the (TLT) for 2017.

To lose money on this position the (TLT) would have to have risen above $127, and yields for the ten-year Treasury bond would have to have dropped below 2.27%.

There is no way this was going to happen ahead of a new deluge of bond selling from the Fed.

As it turned out, the (TLT) closed at $126.39, keeping our spread well in the money.

If you didn't do options and bought the ProShares Ultra Short 20+ Treasury Bond Fund (TBT), a bet that bonds will fall, keep it. It is going much higher.

Well done, and on to the next trade.

Your trading account should be automatically credited with the profits on Monday.

Here are the specific expirations you need to unwind this position:

SELL 56 November, 2017 (TLT) $129 puts at.....................................$2.61
Buy to cover short 56 November, 2017 (TLT) $127 puts at.....................$0.61
Net Proceeds:......................................................................................$2.00

Profit: $2.00 - $1.78 = $0.22

(56 X 100 X $0.22) = $1,232 or 12.35% in 12 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.