Trade Alert – (IWM) January 3, 2013

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)

Buy the (IWM) February, 2013 $79-$84 Bull Call Spread at $4.33 or best

Opening Trade


expiration date: 2-15-2013

Portfolio weighting: 20% = 44 Contracts

Buy the breakout in the (IWM) to a new yearly high. Tomorrow’s December nonfarm payroll will come in better than expected, as the presidential election and Hurricane Sandy recede into the past. Even a bad number will trigger a “buy the dip” move from underweight traders, so for us it is a win-win. The long awaited reallocation out of bonds into stocks has finally started in earnest, so investors are screaming for heavier stock allocations, all at once.

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. If you don’t get filled, then just wait for the next Trade Alert. There will be many fish in the sea.

The same applies if, for any reason, you don’t understand this trade. Better to watch this strategy unfold on paper in the model portfolio before you try it with real money.

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 44 X (IWM) February, 2013 $79 Calls at………………. $8.46
Sell short 44 X (IWM) February, 2013 $84 calls at……...….-$4.13

Net Cost………………………………………….…………. $4.33

Maximum profit at expiartion = $5.00 - $4.33 = $0.67

($0.67 X 100 X 44) = $2,948, or 2.95% for the notional $100,000 model portfolio