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)November 2018 $107-$110 in-the-money vertical BULL CALL spread at $2.90 or best
Closing Trade
10-12-2018
expiration date: November 16, 2018
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I’ll take the home run here and cash in on the 2 ½ point rally in the bond market over the past five trading days.
My bet that a 3.25% yield on the ten year US Treasury bond would be the medium term top has proved correct. Since then, yields have fallen as low as 3.13%.
I am therefore selling my position in the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November 2018 $107-$110 in-the-money vertical BULL CALL spread at $2.90 or best.
At this price, you have realized 80% of the maximum potential profit in this position. The risk/reward does not justify carrying it for 25 more trading days, especially during these extreme market conditions.
By coming out here you earned an eye-popping return of 16% in five trading days, or $1,600, you did this one of the worst meltdowns in market history. Don’t bother telling your friend you made money owning the bond market. They won’t believe you.
Of course, it helped that the September Consumer Price Index came in soft, as I expected. If you take big risks, you can expect big payoffs.
This was a bet that ten-year yield would not rise from the current 2.24% to above 2.37% by the November 16 expiration date in 30 days. It worked.
Well done, and on to the next trade. Take your partner out to dinner this weekend!
Here are the specific trades you need to execute this position:
SELL 40 November 2018 (TLT) $107 calls at………….………$7.80
Buy to cover short 40 November 2018 (TLT) $110 calls at….$4.90
Net Proceeds:………………………….………..………….
Profit: $2.90 - $2.50 = $0.40
(40 X 100 X $0.40) = $1,600 or 16.00% 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.
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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 it done, don’t worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
