Trade Alert – (MS) September 17, 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. This is your chance to ‘look over’ John Thomas’ shoulder as he gives you unparalleled insight on major world financial trends BEFORE they happen.

Trade Alert - (MS)

Stop Loss-Sell the Morgan Stanley (MS) October $15 put at $0.15 or best

Closing Trade


expiration date: 10-19-2012

Portfolio weighting: 5% = 25 Contracts

Who was the loser who thought of this trade? Maybe they consider another line of work. I understand there are wonderful opportunities for English teachers in Uzbekistan right now. But you have to bring your own toilet seat because there aren’t any there yet.

Since Ben Bernanke has peed on my parade with QE3, I think that it is safe to say that the fall sell off in the markets is off the table. Instead of financials leading the downturn, the worst performing sector of the year is now rapidly playing catch up. Instead of plunging to $13, Morgan Stanley (MS) has soared to $18.50. So it is time to pull the ripcord on this disaster.

To execute this trade:

Sell the October, 2012 (MS) $15 puts at……$0.15

Total loss on this trade = $1.08 - $0.15 = $0.93

($0.93 X 100 X 25) = $2,325, or 2.32% for the notional $100,000 model portfolio.

My only saving grace on this position is that I aggressively sold puts against it as a hedge protecting from an upside surprise. It was also a small position, and small disasters are always much more manageable than big ones. So the net P&L for the total package works out to the following:

-2.32%.......Loss on the October $15 puts
+1.02%......Profit on the September $12-$14 put spread
+1.56%......Profit on the October $13 puts

+0.34%.....Total net profit

Even though I was dead wrong on the markets, and worse on the industry selection, and horrific on the name pick, I still made money overall. Such is the magic of being a hedge fund manager.