Trade Alert – (MS) #1 September 10, 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 - (MS)

Buy to Cover the Morgan Stanley (MS) September $12-$14 put spread at $0.01 or best

Closing Trade


expiration date: 9-21-2012

Portfolio weighting: 5%

($5,000/100/$0.02) = 60 Contracts

I think that stock markets are getting rather over expended up here. They have been discounting the launch of QE3 since June 1, or more than three months. The (SPY) has rocketed some 12.7% from $128 to $144.33 during this time. It has also done this in the face of a dramatically weakening economy.

This means that an asymmetric situation has developed in stocks. If the Fed delivers, as most hope, we may rally a little further and then churn sideways until the presidential election. If it disappoints, as I expect, you could get a sudden, gut churning sell off worth 5-10 points in the (SPY). Please keep in mind that I have an extreme minority view, but that is where the big money is made.

So caution argues for covering all of my short put positions, and running my long put positions through the Fed decision. It’s a heads I lose $1, tails I win $10 situation. I’ll take those odds all day long. So there will be more trade alerts rebalancing my portfolio to follow shortly.

The Morgan Stanley (MS) September $12-$14 put spread trade has done its job well, to cut the cost of my (MS) puts by 1% in performance terms. That lessens the pain in my (MS) puts, which I will almost certainly have to sell at a loss.

I am coming out here, rather than run these into expiration on September 21 in 9 trading days. That allows me to free up margin to take advantage of any post Federal Reserve Open Market Committee meeting opportunities that may arise. And you can’t hope that any short goes lower than zero, which this one has nearly done.

Please note that these are just ball park prices and that you should get done what you can. Deep out of the money options can be illiquid. If you have excess margin, then you might as well run them into expiration and not hassle with another execution. Here are the trades that you should execute.:

Buy to cover your short 60 September, 2012 (MS) $14 puts at……$0.03
Sell 60 September, 2012 (MS) $12 puts at……….………………….$0.02

Net Premium Proceeds:……………………………………………...$0.01

Profit = $0.18 - $0.01 = $0.17

(60 X .17 X 100) = $1,020, or 1.02% to your performance for the notional $100,000 model portfolio.

Please note that this is the 19th consecutive profitable closing position for the Trade Alert Service.