As a potentially profitable opportunity presents itself, John will send you an alert with specific trade information as to what should be bought, when to buy it, and at what price.
Further Explanation to: Trade Alert - (GLD)
Sell the SPDR Gold Trust Shares (GLD) June, 2013 $150-$155 in-the-money bear put spread at $4.95 or best
expiration date: 6-21-2013
Portfolio weighting: 10%
Number of Contracts = 23 contracts
With this close we have nailed a heroic $150 crash in the price of gold in less than three weeks. The 50% retracement level in (GLD) at $142.50 proved to be an unbreakable ceiling. The “Buy the dip” mentality for the barbarous relic is dying a very rapid death.
There are only 12 basis points in potential profit left in this trade, and it still has four weeks to expiration. There is absolutely no point in continuing on. The risk/reward is near zero. That is not my style.
Cash here has greater value, even though there is an absolute dearth of other attractive trades to put on. Better to have the maximum amount of dry powder when the next cataclysmic event comes out of the blue. There is no law that says you always have a position on.
Better to purse the short-term stuff that my esteemed colleague, Jim Parker, is punching out. It has a much shorter time frame, more aggressive risk control, and infinitely tighter stop-losses.
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.
Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months further out.
Here are the specific trades you need to execute this position:
Sell 23 June, 2013 (GLD) $155 puts at……………$20.95
Buy to cover Short 23 June, 2013 (GLD) $150 puts at.…….$16.00
Potential Profit at expiration: $4.95 - $4.35 = $0.60
($0.60 X 100 X 23) = $1,380 – 1.38% for the notional $100,000 model portfolio.