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.
Buy the Industrials Select Sector SPDR (XLI) December, 2013 $45-$48 call spread at $2.55 or best
expiration date: December 20, 2013
Portfolio weighting: 10%
Number of contracts: = 38 contracts
Given the hyper bullish RISK ON Trade Alert that I sent out this morning, I have to put my money where my mouth is and buy more stocks.
I am picking the Industrials Select Sector (XLI), rather than the (SPY), this time because it is a rifle shot at what I think will be one of the best performing sectors in the market for the next several months. Industrial are your traditional cyclical play on the US economy.
That is something you want to have on board as America ratchets up from a pedestrian 2% GDP growth rate in 2013 to 3.5% in 2014. Given that we saw a surprise 2.8% print for Q3 just this morning, we are well on our way to that white hot figure.
Please note that a basket of stocks like the (XLI) is going to deliver half the volatility of single stocks. Therefore, we have to be more aggressive with the positioning to make any money, picking strikes that are closer to the money.
For a list of the largest components of the (XLI) ETF, please click here.
We got a brief selloff in the market this morning and a nice half point dip in the (XLI) created by all the distraction emanating from the Twitter IPO. The major risk we are taking by adding this position today is that a bad nonfarm payroll figure gives us a better entry point tomorrow. Even if we get the dip, I think investors will just buy into it, as they have done with all the others.
This is definitely a first class chase but it is a market that deserves chasing. This is the year that punishes those who wait. You’ve got to strike while the iron is hot.
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 farther out.
Here are the specific trades you need to execute this position:
Buy 38 December, 2013 (XLI) $45 calls at……………$4.20
Sell short 38 December, 2013 (XLI) $48 calls at..…….$1.65
Profit at expiration: $3.00 – $2.55 = $0.45
(38 X 100 X $0.45) = $1,710 or 1.71% profit for the notional $100,000 portfolio.