Trade Alert - (TLT) November 19, 2019 - TAKE PROFITS - SELL
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) December 2019 $128-$131 in-the-money vertical BULL CALL spread at $2.92 or best
Closing Trade
11-19-2019
expiration date: December 20, 2019
Portfolio weighting: 10%
Number of Contracts = 38 contracts
Since I sold bonds a week ago, they have been on an incredible tear, soaring nearly five points in five trading days. This is the kind of move you only dream about.
During this period, the yield on the ten-year US Treasury bond has collapse from 1.98% to 1.78%.
The Mad Hedge Market Timing Index wildly overbought at 89 turned out to be a great buying point for bonds, and it now stands at 80. I believed we were about to see a new surge in bond prices.
Overbought begets stock selling which in turn creates bond-buying. But instead of falling, stocks have merely flatlined.
I am therefore selling the iShares Barclays 20+ Year Treasury Bond Fund (TLT) December 2019 $128-$131 in-the-money vertical BULL CALL spread at $2.92 or best.
As a result, you have earned a profit of $1,216 or 12.31% in 5 trading days.
By coming out here, you get some dry powder with which to re-buy the (TLT) during the next correction.
This was a bet that the (TLT) will not fall below $131.00 by the December 20 option expiration in 28 trading days. To lose money on this position, ten-year US Treasury yields would have to rise above 2.15%. That is a bet I was willing to make on top of a 12-point dip.
These strikes had the additional benefit in that the (TLT) has major support at the 200-day moving average at $130.64.
The fundamental reasons for this trade are quite simple. Quantitative easing is ramping up again on a global basis, including the US. Most of that money ends up in US stocks and bonds. More money-creating creates more buying of everything. It’s really that simple.
The US now is among the world’s highest interest rates. They are about to join the ranks of the world’s lowest.
Some 35% of the world’s outstanding government debt now has negative interest rates. In Germany, the figure is an eye-popping 88%. That is hugely bullish for bond prices everywhere.
Here are the specific trades you need to execute this position:
Sell 38 December 2019 (TLT) $128 calls at…......……….………$11.20
Buy to cover short 38 December 2019 (TLT) $131 calls at……$8.28
Net Proceeds:……………………...........…….………..………….….....$2.92
Profit: $2.92 - $2.60 = $0.32
(38 X 100 X $0.32) = $1,216 or 12.31% in 5 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 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.
