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How Seven Cents Could Make You a Fortune (TLT)

Posted on January 31, 2022

Inflation is what’s eventually going to break this market.

In fact, it’s already begun.

And in the bond pits, too, we see anticipatory selling that’s about to gather steam.

There’s little, really, that can be done about it.

The tide’s too big to swim against.

Bond market flows are swelling on the sell side, and it’s unclear whether we’re in for a slow rupture – or of the dam is going to crack and disintegrate altogether.

Either way, lower prices are assured.

The question is how to profit from it.

And the answer is fairly clear.

We open a trade using the long bond ETF that has an extraordinarily favorable risk/reward profile.

Easy, no?

What if we told you that what follows will cost you a mere seven cents to initiate and could bag you a 7043% profit?

Would you be interested?

High yield securities are cratering, the stock market has the runs, the Fed has lost control, and retail buyers are still looking to buy the next dip.

The bear is growling…

But it all starts and ends in the bond pits.

What you should know…

Bond traders are a notoriously suspicious lot – hot, overly sensitive, often opioid dependent and borderline sociopathic.  They’re a cohort that believes in nothing and marches strictly to the dictates of their pain faculty, buying and selling their wares a) to keep up with the Joneses and b) to avoid losing as much as them.

Their awareness of both big picture dynamics and what the next guy is up to is the stuff of legend, while their aptitude to jealously guard their hoard, accumulated over the course of years – if not decades – is the whispered myth of Wall Street.

Get Stith Thompson on it!

It’s the bond traders who ultimately control the capital market narrative.

Now have a look at the chart –

Technically, we have the following salient features to report –

  1. First, RSI is trending below its midway waterline for better than a month now (in green), a sign that bullish momentum is fading.
  2. At the same time, MACD confirmed RSI’s bearishness with a dip below its own waterline some eighteen sessions back.  Taken together, they paint a picture of continued weakness, which we believe is about to accelerate.
  3. Price action is problematic: after breaking below a ten month trendline (in red),
  4. Price has traded in a range between 140 and 144 (in blue).  There’s clearly a battle between bulls and bears to determine proximate direction, one which will ultimately prove futile for the bulls.  Why?
  5. Downward pressure from TLT’s moving averages is mammoth (boxed, in brown).  All MAs are trending lower, and though not completely unfurled, they sit heavily above price and are descending boldly.
  6. Unless we see a sustained move above 150 in the near term, we’re proclaiming arrogantly and without discretion or forethought – that the bull move that commenced last April has now breathed its last.
  7. Next action is likely a test of the March, 2021 lows at 133.

And it’s for all the foregoing that we now offer the following chance to make a killing on TLT… without spending a dime.

Like this –

A Jew and His Money recommends you consider selling the TLT April 14th 141/146 CALL spread* for a credit of $2.12 (4.85/2.73) and buying the TLT April 14th 143/138 PUT spread for $2.19 (4.40/2.21).  Total debit on the trade is $0.07.

[*Sell the 141 CALL and buy the 146 CALL.  **Buy the 143 PUT and sell the 138 PUT.]

Rationale:  you can’t argue with a seven cent expenditure to take home $4.93 (max gain – 7043%).

Max downside risk is $5.07 (difference between the CALL spread strikes plus the initial debit).

Breakeven arrives at $141.93, just eight tenths of one percent below the stock’s current level, i.e., nothing.

Full profit on the trade will accrue with a decline of just 3.5%.

And what a profit it is…

It’s the very tight spreads on TLT’s options that are giving us this opportunity.  At the same time, there’s way too much militating against bond prices these days, and we feel we’ve already held our fire ’til we’ve seen the whites of their eyes.

It’s time to act.

May HaKadosh Baruch Hu bless our efforts with a glorious outcome!

With kind regards,

Hugh L. O’Haynew

 

2 responses to “How Seven Cents Could Make You a Fortune (TLT)”

  1. Jack Peterson says:

    Not sure what the difference is here but I put that trade into thinkorswim on Ameritrade at exactly those strike prices and that shows a breakeven of 142.15 with a net credit after the .65 per contract charge of 22.36 with a max loss of 475 and a max profit of 525.
    That’s different enough from the numbers you projected that I thought I would ask about it.

  2. Hugh L. O'Haynew says:

    bs’d
    Hi Jack,
    You’re absolutely right.
    The market moved marginally and prices have shifted in your favor.
    Your max loss is LESS than we figured and max gain is MORE, because of the credit you secured (our trade required a nominal debit).
    You got a higher breakeven, too.
    Gotta love it!
    May it bring you wealth and simcha, my friend!
    All the best,
    Hugh

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