Trade Alert - (TLT) September 17, 2021 - EXPIRATION AT MAX PROFIT

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 MAX PROFIT

EXPIRATION of the iShares Barclays 20+ Year Treasury Bond Fund (TLT) September 2021 $155-$158 in-the-money vertical Bear Put spread at $3.00

Closing Trade - NOT FOR NEW SUBSCRIBERS, YOUR TURN WILL COME

9-17-2021

expiration date: September 17, 2021

Portfolio weighting: 10%

Number of Contracts = 40 contracts

Since we are a full $5 in-the-money with this position, I think it is safe to call this one a win.

Since we added this position, shares of the United States Treasury Bond Fund (TLT) have remained unchanged.

Therefore, we get to take home the maximum profit in this position, such is the magic of vertical bear put debit spreads. That means you get to take home $1,600, or 16.00% in 24 trading days.

Well done and on to the next trade!

You don’t have to do anything with this expiration.

Your broker (are they still called that?) will automatically use your long position to cover your short position, canceling out the total holdings.

The entire profit will be credited to your account on Monday morning September 20 and the margin freed up.

Some firms charge you a modest $10 or $15 fee for performing this service.

People are not taking a 1.29% yield on the ten-year US Treasury bond against a 5.3% inflation rate generating a negative 4.01% real yield because they think it’s a great deal.

We have just rallied an eye-popping $28.00 off of this year’s $132.20 low for the (TLT). That has taken ten-year US Treasury yields down from 1.76% to 1.15% in four months.  Bonds are now assuming that a fourth wave will take us up to a new peak in deaths and force the economy to close down once again.

I don’t think that is going to happen. With 70% of the US population already vaccinated and 10% having immunity from the disease, only 20% are left to get sick. Eventually, ALL of them will get it, but it will not force a second shutdown of the economy.

The long-term outlook for fixed income is absolutely awful. The next big rotation in the markets will be for tech and bonds to peak out and for financials to bounce hard off a bottom. This will result from coming major upgrades in economic growth, which analysts and strategists are wildly underestimating.

As soon as everyone gets the parts and labor they want, it is going to be off to the raises. Add to that a Fed taper on monetary stimulus and interest rates will soar. At the very least, they have to stop stimulating the housing market with $40 billion a month worth of mortgage-backed securities.

With 2021 expected to be one of the strongest years for economic growth in history, there is no chance you’ll see a major rally in the US Treasury bond market from here. The only question is how fast it will fall.

This trade is basically betting that interest rates will rise in front of the biggest borrowing in human history.

To lose money on this trade, the ten-year US Treasury yield would have to drop below 0.90% in two weeks, which is highly unlikely.

The fundamentals of this trade are very simple. The national debt rose from a record $23 trillion to an eye-popping $28 trillion in 2020. In 2021, it is expected to explode to $32 trillion.  The US Treasury demands on the bond market are going to be incredible.

It is almost mathematically impossible for bond prices to rise and interest rates to fall substantially from here. They can only go sideways at best, or down big in the worst case. Sounds like a great short to me.

This was a bet that the (TLT) would not rise above $155.00 by the September 17 options expiration in 12 trading days. To lose money on this position, ten-year US Treasury yields would have to plunge to 0.90% from the current 1.15%, which they won’t in 12 days.

Here is the specific accounting you need to close out this position:

EXPIRATION 40 September 2021 (TLT) $158 puts at……….......…$7.91
EXPIRATION short 40 September 2021 (TLT) $155 puts at…......$4.91
Net Cost:………………………….………..………….….............................$3.00

Profit: $3.00 - $2.60 = $0.40

(40 X 100 X $0.40) = $1,600 or 16.00% in 24 trading days.

 

 

The Fat Lady is Singing for the Bond Market