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) October, 2012 $132 Puts at $1.60 or best
expiration date: 10-19-2012
Portfolio weighting: 5%
($5,000/100/$1.60) = 11 Contracts
Market volatility is low and may go lower. So I am going to convert my outstanding position in the (SPY) October, 2012 $138 puts from an outright put to a 1:1 $132-$138 put spread.
This will protect us from time decay in the October options and falling volatility, plus reduce the entry cost of our position by a third. I picked the $132 strike because it sits just above a rising 200 day moving average at $131.75. It also reduced the capital I have at risk in this position from 5% to 3.2%.
Profit at expiration for the $132 put only is: (11 X 100 X $1.60) = $1,760, or 1.76% profit for the notional $100,000 portfolio.