Trade Alert – (SPY) August 30, 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 – (SPY)

Sell Short the S&P 500 SPDR (SPY) September, 2012 $145-$150 Call Spread at $0.33 or best

Opening Trade


expiration date: 9-21-2012

Portfolio weighting: 10% = 60 Contracts

I am a firm believer that markets will do whatever they have to do to screw the most people. And what would that be at this particular moment? Should it go up and squeeze the shorts one more time? Or should it take a dive and give the permabulls another bloody nose?

I think that the ultimate pain trade right now would be for the market to do nothing, to continue to drift sideways on diminishing volume. That is the trade that the market participants are least prepared for. In my book, it is therefore the one that is most likely to unfold.

Not that this would not be a new thing. Volatility has been dropping like a stone since it peaked at $27 in June. It reached a five year low just above $13 last week. So while it may seem insane to short a deep out of the money call spreads in front of the most volatile month of the year, I think that this time it should work.

Uncertainty appears to be the order of the day, what with the Federal Reserve Open Market Committee meeting taking place on September 12-13 where they either will, or will not, announce QE3. The German Supreme Court decision on the country’s participation in a European bailout plan comes out the same day, and the US presidential election is to follow.

And what do traders do in the face of such uncertainty? Nothing. They just sit around while pretending to work, watching ESPN, or playing Sudoku on their computers.

At least that is how the script has played out for the last three months. I only need such deception, indolence, and inaction to continue for 14 more trading days to book the entire profit on this trade.

If you don’t have sufficient margin left to do this, cash in some of your other positions where the profit is already nearly maxed out, like the short (SPY) September $147-$153 call spread or the (AAPL) $550-$600 call spread.

This “RISK OFF” trade should balance out our existing “RISK ON” which are approaching rather elephantine proportions. This is the equivalent of finishing off everyone’s drinks for free after they have left the bar to pursue other interests.

These are the trades you should execute:

Sell short 60 September, 2012 (SPY) $145 calls at……$0.37
Buy 60 September, 2012 (SPY) $150 calls at………….$0.04
Net Premium Proceeds:…………………………………$0.33

If the (SPY) closes at or below $145 on the September 21 expiration, we get to keep the maximum profit. That will be: (60 X 100 X $0.33) = $1,980, or 1.98% profit for the notional $100,000 portfolio for a one month position.

Now, off to my manicure.

Time to Go Short Bored Traders!