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)
Cover your Short the S&P 500 SPDR (SPY) September, 2012 $137 Puts at $0.14 or best
expiration date: 9-21-2012
Portfolio weighting: 5%
($5,000/100/$0.14) = 11 Contracts
I think that markets are getting rather over expended up here. They have been discounting the launch of QE3 since June 1, or more than three months. The (SPY) has rocketed some 12.7% from $128 to $144.33 during this time. It has also done this in the face of a dramatically weakening economy.
This means that an asymmetric situation has developed in the (SPY). If the Fed delivers, as most hope, we may rally a little further and then churn sideways until the presidential election. If it disappoints, as I expect, you could get a sudden, gut churning sell off worth 5-10 points in the (SPY).
So caution argues for covering all of my short put positions, and running my long put positions through the Fed decision. It’s a heads I lose $1, tails I win $10 situation. I’ll take those odds all day long.
The other reason for coming out here is that these puts have done an admirable job mitigating losses in my long October, $138 put position. At 14 cents, I am reaping 85% of the potential profit. It also frees up margin for the bigger fish to fry which will be swimming in schools in the post Fed decision world.
Profit: $0.94 – $0.14 = $0.80
(11 X $0.80 X 100) = $880, or 0.88% to your performance for the notional $100,000 model portfolio.
Please note that this is the 22th consecutive profitable closing position for the Trade Alert Service.:)