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) April, 2013 $160-$163 put spread at $2.68 or best
expiration date: 4-19-2012
Portfolio weighting: 10%
Number of Contracts = 37 contracts
OK, I am willing to sell short a market that is up nine days in a row, an event that occurs only once a decade a decade. In fact, the last time we saw such a steady appreciation of stock prices was 16 years ago. Remember good old Slick Willie? So I am committing 10% of my capital to the SPDR S&P 500 (SPY) April, 2013 $160-$163 deep in-the-money bear put spread.
This is a bet that the (SPY) closes at or below the all time high level of $160 on the April 19 expiration. That is up 3.22% from here. I may not run this position all the way into expiration, as I have done with most of my other in-the-money call spreads. Instead, I will probably take the easy money on the next 2% dip in the index, if we get one, pray for more shocking political and economic developments in Italy. That sounds like a pretty safe bet.
It’s not like there is a lot else to do out there. After such a spectacular run, I am loath to commit to major new longs at these lofty levels. Please refer to today’s letter about “The Back Swans Are Circling.” Knock the market down 5%-10% and that a horse of a different color. But right here, right now, there is not much to chew on. Nada.
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 37 April, 2013 (SPY) $163 puts at……………$9.33
Sell Short 37 April, 2013 (SPY) $160 puts at.…….$6.52
Potential Profit at expiration: $3.00 - $2.68 = $0.32
($0.32 X 100 X 37) = $1,184 – 1.18% for the notional $100,000 model portfolio.