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.
Follow Up to Trade Alert - (LEN) STOP LOSS - UPDATE
Sell the Lennar Homes (LEN) May, 2015 $45-$49 deep in-the-money vertical call spread at $2.48 or best
expiration date: May 15, 2015
Portfolio weighting: 10%
Number of Contracts = 29 contracts
I hate it when the fundamental argument I make about a stock comes true, but the short term technicals drive it down anyway. That?s what happened to our long position in Lennar (LEN) this morning.
Lennar isn?t going down because of what Lennar did. It is falling because Pulte Homes (PHM) just reported disappointing earnings.
Every loss should be a learning experience, lest we are bound to repeat. Even after 45 years in the business, this old fool is still getting educated. So here is where I fumbled the ball on this trade:
1) I chased the stock on the upside three weeks ago, getting in at an expensive entry point, hoping that the momentum would continue. It didn?t.
2) I ignored the break of the 50-day moving average last week, thinking it was just spoofing by high frequency traders, the bane of our existence.
3) When the March existing home sales came in at a blockbuster 10.4% YOY, as I expected, the shares rightly tacked on $1. But it gave up the entire gain through the rest of the day, never a good sign. When a stock fails to hold a rally on great news, it is time to pull the ripcord.
This is not the end of the world. Even with this loss the Trade Alert service is still up an amazing 20% so far in 2015, and is at an all time high. April has been our best month in over two years.
On to the next trade.
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 execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile on expiration months farther out.
If the price of this spread has moved more than 5% by the time you receive this Trade Alert, don?t chase it. Wait for the next one. There are plenty of fish in the sea.
Here are the specific trades you need to execute this position:
Sell 29 May, 2015 (LEN) $45 calls at?????$3.20
Buy to cover short 29 May, 2015 (LEN) $49 calls at..??.$0.72
Loss: $3.45 ? 2.48 = -$0.97
(29 X 100 X -$0.97) = -$2,813 or -2.81% loss for the notional $100,000 portfolio.