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 $2.80 or best
expiration date: 4-19-2013
Portfolio weighting: increase from 10% to 20%
Number of Contracts = 37 contracts.
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 3.1% 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, Cyprus, or Timbuktu. 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 cautious on committing to major new aggressive longs at these lofty levels. Please refer to last week’s letter about “The Back Swans Are Circling” (click here for the link at http://madhedgefundradio.com/black-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. This trade also has the additional attribute in that it perfectly balances out our longs and shorts in the model trading portfolio.
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……………$7.85
Sell Short 37 April, 2013 (SPY) $160 puts at.…….$5.05
Potential Profit at expiration: $3.00 - $2.80 = $0.20
($0.20 X 100 X 37) = $740 – 0.74% for the notional $100,000 model portfolio.