Trade Alert – (IWM) May 21, 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 Russell 2000 iShares (IWM) June, 2012 $80 Puts at $5.92 or best

Closing Trade

5-21-2012 –10:00 pm EST

expiration date: 6-15-2012

Portfolio weighting: 15% = 42 Contracts

I expect a fairly energetic bounce off the 200 day moving average in the S&P 500, which we hit last night in Asian trade, triggering a wave of profit taking for all “RISK OFF” positions. We have covered a lot of real estate on the downside in a very short time.

You have to give the permabulls one more chance to run this thing up. The markets are now nearly the most oversold in history. Asymmetric risks are now to the upside. That means that the next marginal piece of bad news can only push stocks down a little, but the next piece of good news will drive it up a lot.

Accelerated time decay is also kicking in for the June options, and I want to retrieve what premium I still can. So I am going to step out here and move to the sidelines, looking for better entry points down the road.

The profit on this trade amounts to ($5.92 - $3.53 = $2.39). This added (100 X 42 X $2.39) = $10,038, or 10.03% to the value of your notional $100,000 model portfolio. This will be one of the most profitable trades of the year, and more that covers the loss taken on the short May (IWM) $77 put position.