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)
Buy the SPDR S&P 500 (SPY) March, 2013 $155-$158 bear put spread at $2.70 or best
expiration date: 3-15-2012
Portfolio weighting: 20%
Number of Contracts = ($20,000/100/$2.70) = 74 contracts
Yes, this is a short position. It is a bet that the SPDR S&P 500 (SPY) does not trade above $155.00 by the March 15, 2013 expiration. That is up 3.5% from here. This bet comes on top of an amazing 6% rise since January 2. Even if the market moves sideways this month, this position will expire at its maximum value in six weeks.
I think you have to get some sort of pullback between now and March 15, like of the 2%-4% range. Another possibility is that it grinds sideways in a narrowing range with diminishing volatility, because there are still so many investors trying to get in.
The move we have seen in stocks this year has been one of the most extended in 18 years, back when the Dow was trading at about 3,000. If we do, this will partially hedge the remaining long positions that currently bulk up our portfolio. There is absolutely no way that we will repeat the January performance in February. The only choices are down, or sideways.
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 execute the legs individually or you will end up losing much of your profit.
Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months farther out.
Here are the specific trades you need to execute this position:
Buy 74 March, 2013 (SPY) $158 puts at……………$9.00
Sell short 74 March, 2013 (SPY) $155 puts at …….$6.30
Maximum potential profit at expiration:
$3.00 – $2.70 = $0.30
($0.30 X 100 X 74) = $2,220 or 2.22% for the notional $100,000 model portfolio.