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, 2017 $129-$131 in-the-money vertical BEAR PUT spread at $1.99 or best
expiration date: November 17, 2017
Portfolio weighting: 10%
Number of Contracts = 56 contracts
Since I added this short position three trading days ago, bonds have suffered a pretty massive move down, hitting a two-month low.
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.
The Nikkei stock average up 16 days in a row?
I also have an imbedded instinct to automatically take a 10.55% profit that drops in my lap in only three trading days.
The risk reward of continuing for 22 more trading days until the November 17 expiration are now longer favorable.
I am therefor taking profits and selling my position in the iShares Barclays 20+ Year Treasury Bond Fund (TLT) November, 2017 $129-$131 in-the-money vertical BEAR PUT spread.
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 QE unwind.
3) It is widely perceived that potential tax cuts will provide further stimulus for the US economy.
All are HUGELY bond negative.
That should take bonds down to new 2017 lows. 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 $129, and yields would have to drop below 2.13%, which they absolutely wouldn’t ahead of a new deluge of bond selling from the Fed.
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.
Here are the specific trades you need to execute this position:
Sell 56 November, 2017 (TLT) $131 puts at…………………………………….$8.15
Buy to cover short 56 November, 2017 (TLT) $129 puts at……………………….$6.16
Profit: $1.99 – $1.80 = $0.19
(56 X 100 X $0.19) = $1,064 or 10.55% in 3 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.