TLT ETF Trade Setup
We are opening a June
expiration month 20+ Year Treasury Bond Fund ETF (TLT) bear call spread
TLT closed at $122.56 on Tuesday (25 days to the June expiration)
TLT is priced ABOVE its current 14-day EMA (see TLT chart down below)
TLT is trading ABOVE its 20-day Bollinger Band SMA (see TLT chart)
TLT is priced ABOVE its 50-day simple moving average (see TLT chart)
TLT is ABOVE its 200-day simple moving average (see TLT chart)
Relative Strength Indicator (RSI) is overbought (See TLT chart)
Moving Average Convergence/Divergence (MACD) is bullish (See TLT chart)
30 day Historical Volatility is 11.23%, Implied Volatility is 14.45% - both numbers are near the lower level of their 52-week range which is considered bullish
Use the number of days to expiration, implied volatility number and 2 standard deviations to calculate the 80% statistical probability for the option price to close within our short strikes at expiration.
We want the TLT Bear Call spread short strike to exceed defined resistance levels :
$125.00 calculated based on previous intraday highs and technical resistance levels
$126.00 equals the upper price level of our 80% statistical probability range
$125.00 is the upper level of the Bollinger Band â€“ Upper solid purple line in the SPY chart above
We want the TLT call credit spread to generate a minimum .50 net credit AND we prefer that the short strike fits our statistical probability profile (80% chance all the options will expire worthless and we get to keep most of the sold premium). The spread in tables below comply with our trading rules for initiating the June expiration month option series TLT bear call spread (based on Tuesday's closing prices). The suggestion is to submit an order to purchase/sell the option strikes prices below. Please confirm the correct option symbols with your broker.
Premium Credit $.60
Total Option Premium Received $1,200 (Excludes commissions and fees)
Maximum Risk $8,800
Margin Requirement $10,000
20 contracts traded on each leg (number of contracts can be increased or decreased based on risk tolerance and/or funds available to trade; this will impact Total Premium Received, Maximum Risk amount, and Margin Required)
As with initiating the trade, the decision process for exiting our call spread position will be simple:
Anytime the market maker is willing to accept a limit price of less than .11 on the short strike, buy back all the short contracts and sell the long positions. However, if it is a few days prior to the expiration date, we may be able to hold out for a .05 bid.
If the short strike is penetrated (closing price above the short call) AND the delta rises to .65 we will look to close out this spread (buy the short contracts, sell the long) and roll it out to another short strike price. Unless this is option expiration week, do not panic and rush to close the trade, many times the market will reverse itself and remove the sense of urgency. If one of our short strikes has been violated and there is no price reversal, we cut our losses and live to fight another day.
If prices gap down tomorrow the call spread may not be available as published and we will hold off on the trade. Conversely if prices rise sharply then we will probably initiate the call spread at higher strike prices with a similar risk profile as described above.
Couch Potato Trader Disclaimer
All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices (though many often do) or participated in these recommendations (even though many do). The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable trader might receive utilizing these strategies. If you don't get close to these results, guess what. It isn't the fault of the strategies.