Trade Alert - (TLT) September 10, 2018 BUY
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) - BUY
BUY the iShares Barclays 20+ Year Treasury Bond Fund (TLT)October, 2018 $114-$117 in-the-money vertical BULL CALL spread at $2.65 or best
Opening Trade
9-10-2018
expiration date: October 19, 2018
Portfolio weighting: 10%
Number of Contracts = 38 contracts
You may think I’m MAD to buy bonds at the beginning of a secular long-term bear market. However, the rate of decline has been so slow, only a point in the last two years, that there is an opportunity here to make some quick money on the long side.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) October, 2018 $114-$117 in-the-money vertical BULL CALL spread at $2.65 or best.
Global excess liquidity has been supporting bond markets around the world, with ten year German bunds at 0.40% and the ten year Japan Government Bond at a lowly 0.10%.
However, this year, we have a new factor pushing bonds up. US Corporate stock buybacks have soared from $400 billion in 2017 to $1 trillion this year, largely in the technology area.
What are many of these tech stock sellers doing with their new cash? They are pouring it into US government bonds. And they are doing this not because of the great 2.95% yield, but to keep the money in a safe hiding place. This is why bonds have enjoyed almost a continuous rally since the February 1 low.
It is also not a bad idea to own some bonds going into the two worst trading months of the year.
So, just put a bid in the middle market and if nothing gets done keep raising it by five cents until you are. That is the only way to buy a position in these illiquid markets.
This is a bet that the (TLT) will not fall below $117 by the October 19 options expiration days in 24 trading days.
For this to happen, the ten-year Treasury bond yield would have to rise from the current 2.94% to above 3.10%. With massive global excess liquidity there is no way that is going to happen.
Don’t pay more than $2.75 for this position or you’ll be chasing.
If you don’t do options you can buy the (TLT) outright for a potential three-point rally.
Here are the specific trades you need to execute this position:
Buy 38 October, 2018 (TLT) $114 calls at………….………$5.70
Sell short 38 October, 2018 (TLT) $117 calls at………….$3.05
Net Cost:………………………….…………..………….…..
Potential Profit: $3.00 - $2.65 = $0.35
(38 X 100 X $0.35) = $1,330 or 13.20% in 24 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.
