Trade Alert - (TLT) October 20, 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) October, 2017 $127-$129 in-the-money vertical BEAR PUT spread at $2.00
Closing Trade
10-20-2017
expiration date: October 20, 2017
Portfolio weighting: Decrease from 20% to 10%
Number of Contracts = 56 contracts
With the collapse of bond prices this morning our short position has expired at out maximum profit point.
The iShares Barclays 20+ Year Treasury Bond Fund (TLT) October, 2017 $127-$129 in-the-money vertical BEAR PUT spread expired at $2.00.
That means you earned a handsome $1,232, or 12.35% on you capital in 16 trading days.
To lose money on this position the (TLT) would have to have risen above $127.00, and yields would have to have dropped below 2.16%, before the October 20 expiration date in 16 trading days.
Instead, the (TLT) closed at $123.98 today, and the yield is 2.38%.
If you didn't do options, and bought the ProShares Ultra Short 20+ Treasury Bond Fund (TBT), a bet that bonds will fall, instead, keep it. The (TBT) will go much higher.
You don't have to do anything with an expiration.
Your broker (are they still called that?) will automatically use your long $129 put position to cover your short $127 put position in the October (TLT), cancelling out the total holding.
The profit will be credited to your account on Monday morning October 23, and the margin freed up.
Some firms charge you a modest $10 or $15 fee for each leg for performing this service.
If you don't see cash show up in your account on Monday, get on the blower immediately.
Although the expiration process is now supposed to be fully automated, occasionally mistakes do occur. Better to sort out any confusion before losses ensue.
I don't usually run positions into expiration like this, preferring to take profits two weeks ahead of time, as the risk reward is no longer that favorable.
But we have a ton of cash right now, and I don't see any other great entry points for the moment.
Better to keep the cash working and duck the double commissions. This time being a pig paid off handsomely.
Here are the specific details of this expiration:
Expiration of long 56 October, 2017 (TLT) $129 puts at.....................$5.07
Expiration of short 56 October, 2017 (TLT) $127 puts at..............$3.07
Net Proceeds:....................................................................................$2.00
Profit: $2.00 - $1.78 = $0.22
(56 X 100 X $0.22) = $1,232 or 12.35% in 16 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.
