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. Read more
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. Read more
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. Read more
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. Read more
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. Read more
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. Read more
While the Diary of a Mad Hedge Fund Trader focuses on investment over a one week to six-month time frame, Mad Day Trader, provided by Bill Davis, will exploit money-making opportunities over a brief ten minute to three day window. It is ideally suited for day traders, but can also be used by long-term investors to improve market timing for entry and exit points. Read more
Global Market Comments
January 14, 2016
Fiat Lux
Featured Trade:
(WHY I DOUBLED MY SHORTS YESTERDAY),
(SPY), (XIV), (USO), (FXI),
(HOW TO TRADE THE FRIDAY OPTIONS EXPIRATION),
(SPY), (TLT)
SPDR S&P 500 ETF (SPY)
VelocityShares Daily Inverse VIX ST ETN (XIV)
United States Oil (USO)
iShares China Large-Cap (FXI)
iShares 20+ Year Treasury Bond (TLT)
I did not buy the rally in stocks this week for two seconds.
Once the S&P 500 (SPY) bounced off of the $190 level the first time, it was only a question of how soon to sell again. When I said ?Sell every rally in stocks this year,? I wasn?t kidding.
As it turns out, I caught the absolutely top tick in the (SPY) at $195.
That?s where I quickly bought the (SPY) February $202-$207 vertical bear put debit spread. Within hours, the index cratered an awesome $70 handles, and I was already looking at 70% of the maximum potential profit.
The great luxury of the S&P 500 SPDR?s (SPY) February, 2016 $202-$207 in-the-money vertical bear put spread is that it allows you to cash in on continued extremely elevated levels of the Volatility Index (VIX).
This is why the potential return is so high for a front month options spread already 7 handles, and now 12 handles in-the-money.
In the meantime, I continued to run big shorts in the (SPY) with my February 187 and $190 puts.
This was on the heels of cutting by half my (XIV) position at cost, and taking profits on my (SPY) January $182-$187 vertical bull call debit spread during the rally.
Since yesterday, I have cut the net exposure of my sizeable trading book from 40% to 0%. This is how you do it.
My lack of faith in this market can be measured by the bucket load.
I believe that oil (USO) hasn?t bottomed yet.
All we are seeing here is a round of natural short covering you would expect as the price bounces off the big round number of $30, something which computer driven algorithms love to do.
There are many more visits to the $20 handle for oil to come. Brent is already there.
If you have some magical insight into the price of oil, better than the entire industry combined, and are convinced that Texas tea bottomed yesterday, then you shouldn?t touch the S&P 500 SPDR?s (SPY) February, 2016 $202-$207 in-the-money vertical bear put spread. In that unlikely scenario, stocks rocket from here.
Then there?s China (FXI), whose continued turmoil will bring further US stock losses. I assure you, not even the Chinese know what?s going on in China. They are more like the unfortunate deer that is frozen in the headlights.
If the stock markets of the Middle Kingdom were either up or down 10% tomorrow, I wouldn?t be surprised.
I?m quite happy with the performance of the Trade Alert service so far in 2016.
Here we are only 8 trading days into the New Year and many traders have already blown up, including quite a few trade mentoring newsletters. We should be hauling in some big numbers in January and February.
This is how you trade a crash. Watch and learn. The opportunities are legion.
We currently have two options positions that are deep in the money, and I just want to explain to the newbies how to best maximize their profits going into tomorrow?s January options expiration.
These comprise:
The S&P 500 SPDR?s (SPY) January $185-$190 in-the-money vertical bull call put spread with a cost of $4.58
The IShares Barclay?s 20 Year+ Treasury Bond Fund (TLT) January $125-$128 in-the-money vertical bear put spread with a cost of $2.70.
Here?s the easy part:
As long as the (SPY) closes at $190 or above at the close, the position will expire worth $5.00 and you will achieve the maximum possible profit. The nine-day gain on the trade will be 9.2%.
In addition, as long as the (TLT) closes at $125 or below at the close, the position will expire worth $3.00 and you will achieve the maximum possible profit here as well. The seven-day profit will be 11.1%.
Since the bond market closes at 3:00 PM EST on Friday, don?t expect much price movement after that.
Better than a poke in the eye with a sharp stick, as they say, especially in these difficult trading conditions.
In this case, the expiration is very simple. You take your left hand, grab your right wrist, pull it behind your neck and pat yourself on the back for a job well done.
Your only problem now is to figure out how to spend your winnings.
Your broker (are they still called that?) will automatically use the long (SPY) call to cover the short (SPY) call, and the long (TLT) put to cover the short (TLT) put, entirely cancelling out the positions.
The profit will be credited to your account on the following Monday, and the margin freed up.
If doesn?t, get on the blower immediately, because broker computers sometimes make mistakes, and they will always try to blame you first.
If an unforeseen event causes the (SPY) to collapse to the downside before the Friday close, such as if oil decides to crater once more, then things start to get complicated.
If the (SPY) expires slightly out-of-the-money, like at $189.90, the position can become a headache.
On the close, your short put position expires worthless, but your long put position is converted into a large, leveraged outright naked long position in the (SPY) with a cost of $185.58.
This position you do not want on pain of death, as the potential risk is huge and unlimited, and your broker probably would not allow it unless you wired in a ton of new margin immediately. It is more likely that they will execute a forced liquidation of your account.
This is to be avoided at all cost. It is not what moneymaking is all about.
Professionals caught in this circumstance then sell short a number of shares of (SPY) on expiration day equal to the short position they inherit with the expiring $185 call to hedge out their risk.
Then the long (SPY) position in the $185 calls is cancelled out by the short (SPY) position in the shares, and on Monday both disappear from their statement.
To minimize risk, traders attempt to sell these shares right at the close. As you have thousands of people attempting to do this at the same time, price action on expiration closes can be wild.
So for individuals, I would recommend just selling the January $185-$190 vertical call debit spread outright in the market if it looks like this situation may develop and the (SPY) is going to close very close to the $190 strike.
Keep in mind, also, that the liquidity in the options market completely disappears, and the spreads widen, when a security has only hours, or minutes until expiration. No one wants to be left holding the bag.
This is known in the trade as the ?expiration risk.?
Don?t worry if you lose money on this one position. Your loss will be more than offset by profits in your February $190 puts and February 187 puts which you independently bought last Friday and Monday. That will give you a generous overall profit.
The logic is the same if the (TLT) looks like it is going to close over $125 tomorrow.
One way or the other, I?m sure you?ll do OK, as long as I am watching my screens like a hawk, which I will be. If I think any action is required on your part, I will send out the Trade Alert in seconds.
One way or the other, you will make money on these trades.
Well done, and on to the next trade.
