Trade Alert – (IWM) December 18, 2012

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 – (IWM)

Sell the iShares Russell 2000 Index ETF (IWM) January, 2013 $76-$80 in-the-money call spread at $3.96 or best

Closing Trade- for existing holders only

12-18-2012

expiration date: 1-18-2013

Portfolio weighting: 10%

Number of Contracts = ($10,000/100/$3.96) = 33 contracts

With today’s monster “RISK ON” rally, we have maxed out the potential profit in the iShares Russell 2000 Index ETF (IWM) January, 2013 $76-$80 in-the-money call spread. It is not worth running the position for an extra month just to capture the last remaining 13 basis points. It looks like the Russell 2000 is going to close 2012 at the high for the year, as I expected.

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.

These are the trades you should execute:

Sell 33 January, 2013 (IWM) $76 Calls at…………………..…$8.31
Buy to cover Short 33 January, 2013 (IWM) $80 Calls at…….$4.35
Net Proceeds:……………………………….…………….……….$3.96

Profit: $3.96 – $3.00 = $0.96

($0.96 X 100 X 33) = $3,168 – 3.17% for the notional $100,000 model portfolio.