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 2024 $93-$96 in-the-money vertical Bull Call debit spread at $2.60 or best
Opening Trade
9-24-2024
expiration date: October 18, 2023
Portfolio weighting: 10%
Number of Contracts = 40 contracts
We have just seen nearly a $4 pullback from the recent (TLT) high, and with another 50 basis point interest rate cut we may not get much more.
Ten-year US Treasury bonds are currently yielding 3.75%. This is a bet that they don’t rise above 3.90% in four weeks.
The cruel fact is that over half of the US economy is getting killed by high rates, old economy capital-intensive sectors like steel, cruise lines, utilities, and REITS for commercial real estate, and regional banks. At some point, the Fed is going to HAVE to cut rates to bail out this troubled part of the economy.
We are also getting a halving in quantitative tightening that will also give bonds a boost.
If you don’t trade options, just buy the (TLT) outright. I am looking for a possible gain to $110 this year.
I am therefore buying the iShares Barclays 20+ Year Treasury Bond Fund (TLT) October 2024 $93-$96 in-the-money vertical Bull Call debit spread at $2.60 or best.
Don’t pay more than $2.75 or you’ll be chasing on a risk/reward basis.
We are now entering a long-term declining period for the interest rate cycle. By midyear, economic weakness will be so obvious to the Fed that a dramatic rate cutting policy will ensue to avoid a recession.
And this won’t be just any old easy money policy. I expect a 0.25% rate CUTS for the indefinite future and for the Fed to continue cutting at a 0.25% rate at every meeting until the economy stabilizes.
In addition, the Fed is ending its quantitative tightening program this year, which is currently sucking $90 billion a month out of the economy. That’s a lot of bond selling that suddenly ends.
Bonds will soar.
I’m looking for $110 in the (TLT) sometime in 2024 and maybe even $120. Use every dip to load up on shares in the ETF, calls, call spreads, and one-year LEAPS. This trade is going to work fast. It is the low-hanging fruit of 2024.
Kaching!
The only way to lose money on this position is if the US economy absolute catches on fire and sends interest rates soaring in the next months. As we are on the verge of a possible soft landing, I highly doubt this is going to happen.
This is a bet that the (TLT) will not fall below $96.00 by the October 18 option expiration in 18 trading days.
Here are the specific trades you need to execute this position:
Buy 40 October 2024 (TLT) $93 calls at………….………$6.00
Sell short 40 October 2024 (TLT) $96 calls at….………$3.40
Net Cost:………………………….………..………….….............$2.60
Potential Profit: $3.00 - $2.60 = $0.40
(40 X 100 X $0.60) = $1,600, or 16.00% in 18 trading days.
It’s now the Opening Act for the Bond Market
If you are uncertain about how to execute an options spread, please watch my training video by clicking here.
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 on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.