Trade Alert – (SPY) October 23, 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) November, 2012 $150-$155 deep-in-the-money bear put Spread at $4.96 or best

Closing Trade


expiration date: 11-16-2012

Portfolio weighting: take 20% down to 0%

Number of Contracts = ($20,000/100/$4.38) = 46

This position has performed like an absolute star, providing ample downside protection for our long positions in gold (GLD), silver (SLV), Apple (AAPL), and Google (GOOG). Since I strapped this baby on, the (SPY) has plunged by 5 points, or 3.4%.

There is only 4 cents left in potential profit, so there is no point in continuing on into the November expiration nearly one month away. So I am taking my profits here on the entire 20% position. In addition, I don’t want to go into the Apple earnings tonight with a big short, which I expect to be good.

On the next decent rally I plan to reestablish this position with lower strikes, probably the $145-$150 with the November expiration again. I think we can expect continued weakness into the presidential election. With both bonds and stocks in free fall, which almost never happens, the uncertainty created by an election tightening in the polls is the only possible explanation for the recent market action.

It is also possible that the market is discounting a Romney win, which would be terrible for all asset prices. Or it may be discounting no win by anyone, with the election tossed into the Supreme Court, as it was with Bush versus Gore in 2000. That would be a disaster for the markets, which would quickly give back all of its 2012 gains, QE3 or not.

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. If you don’t get filled, then just wait for the next Trade Alert. There will be many fish in the sea.

Keep in mind that these are ball park prices only. Spread pricing can be very volatile on expiration months farther out. These are the trades you should execute:

Sell 46 November, 2012 (SPY) $155 Puts at……………..………$13.44
Buy to cover Short 46 November, 2012 (SPY) $150 Puts at…….$8.48
Net Proceeds:…………………………………….………………….$4.96

Profit on the October 8 purchase:
$4.96 – $4.38 = $0.58

($0.58 X 100 X 23) = $1,334, or 1.33% for the notional $100,000 model portfolio.

Profit on the October 9 purchase:
$4.96 – $4.54 = $0.42

($0.42 X 100 X 23) = $966, or 0.97% for the notional $100,000 model portfolio.

Comments are closed.