Trade Alert – (SPY) December 18, 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 – (SPY)

Sell the SPDR S&P 500 (SPY) January, 2013 $131-$136 deep-in-the-money call spread at $4.95 or best

Closing Trade-for existing holders only

12-18-2012

expiration date: 1-18-2013

Portfolio weighting: 20%

Number of Contracts = ($20,000/100/$4.99) = 50 contracts

With today’s major rally, we have squeezed virtually the entire potential profit out of the SPDR S&P 500 (SPY) January, 2013 $131-$136 deep-in-the-money call spread. My post election rally finally came through. It looks like the stock market will close 2012 at the high for the year, as I have been pounding the table about for the past four months.

It is not worth running another month of risk just for five more basis points. If there has been one lesson to learn this year, it is take the money and run. This will free up capital to take advantage of other trading opportunities. It also greatly the overall risk profile of the trading book.

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous. Don’t buy the legs individually or you will end up losing much of your profit up front. Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months farther out.

These are the trades you should execute:

Sell 50 January, 2013 (SPY) $131 Calls at……………….……$13.87
Buy to cover Short 50 January, 2013 (SPY) $136 Calls at…….$8.88
Net Proceeds:……………………………….…………………….$4.99

Maximum potential profit at expiration:
$4.99 – 4.04 = $0.95

($0.95 X 100 X 50) = $4,750 – 4.75% for the notional $100,000 model portfolio.

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