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.
Trade Alert – (AAPL)
Cover your short in the (AAPL) January, 2013 $575-$650 Call Spread at $0.34 or best
Closing Trade-not for new subscribers
expiration date: 1-18-2013
Portfolio weighting: short 20%
= 6 Contracts
This short position did it job well. It cut our losses on the (AAPL) $525-$575 call spread by 1.75%, which is the profit on this trade. My mistake was in not employing this defensive strategy earlier by shorting a call spread in December as well, when I probably could have taken in an additional 2%.
At this point, we have reaped 90% of the potential profit in the position. There is no longer any point in allowing it to tie up 20% of our capital, especially when there are so many other attractive alternatives trades. It only has six trading days to expiration anyway. These include shorting the Japanese yen and the US Treasury market, and adding to my long US stock position.
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 buy the legs individually or you will end up losing much of your profit up front.
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 profitable position:
Buy to cover short 6 X (AAPL) January, 2013 $575 Calls at... $0.39
Sell 6 X (AAPL) January, 2013 $650 calls at………….....….-$0.05
Net Proceeds……………………………………..………….. $0.34
Profit = $3.25 - $0.34 = $2.91
($2.91 X 100 X 6) = $1,746, or 1.75% for the notional $100,000 model portfolio.