Trade Alert – (SPY) Update – January 12, 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.

Buy the S&P 500 ETF (SPY) March $126 Puts at $3.29 or best

Opening Trade


Portfolio weighting: 2.5%

($2,500/$100/3.29) = 8 contracts

expiration: 3-17-2012

After holding fire for two weeks, I am going to start nibbling on the short side in the S&P 500. Specifically, I am going to buy the (SPY) March $126 Puts at $3.29. The success of the Spanish bond auction today, which brought their ten year yields down 50 basis points, has given an extra day of life to the New Year rally which I will try to cash in on.

I think we are reaching the tag ends of a three month move in the index that has taken us up 21% from the October 4 low. As the January reallocation push starts to run its course, downside risks are rising. The is a chance that the (SPY) will double top right around here just below $130.

I am wondering what can go wrong with this trade, and the only thing I can think of is that were get a series of earnings reports that surprise to the upside. Technology companies that lead the season have come up with uninspiring reports so far. The bank stocks, which have led the market on a big short covering rally, are also running out of steam.

Even if I am wrong, it is likely that the (SPY) will pause along the way and retrace back to the 50 and 200 day moving averages now converging at $124. That would take the (SPY) March $126 Puts from $3.29 to $5.40, a gain of 65%.

I am opening here with only a half position. That will give me the option of either stopping out with little pain or doubling up if we get an upside breakout in the market.