Trade Alert – (SPY) October 8, 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.

Trade Alert – (SPY)

Buy the SPDR S&P 500 (SPY) November, 2012 $150-$155 deep-in-the-money bear put Spread at $4.38 or best

Opening Trade


expiration date: 11-16-2012

Portfolio weighting: 10%

Number of Contracts = ($10,000/100/$4.38) = 23

The best execution can be had by placing your limit order 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 try cancelling your order and entering a new bid five cents higher. If this doesn’t work, then wait for the next Trade Alert. There will be many fish in the sea.

The same applies if, for any reason, you don’t understand this trade. Better to watch this strategy unfold on paper in the model portfolio before you try it with real money.

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:

Buy 23 November, 2012 (SPY) $155 Puts at……………$9.60
Sell Short 23 November, 2012 (SPY) $150 Puts at…….$5.22
Net Cost:………………………………..………………….$4.38

Maximum potential profit at expiration:
$5.00 – $4.38 = $0.62

($0.62 X 100 X 23) = $1,426 – 1.43% for the notional $100,000 model portfolio.