Follow Up to Trade Alert - (SPY) April 4, 2014
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.
Further Update to: Trade Alert -(SPY)
Buy the S&P 500 (SPY) May, 2014 $193-$196 in-the-money bear put spread at $2.37 or best
Opening Trade
4-4-2013
expiration date: May 16, 2014
Portfolio weighting: 10%
Number of Contracts = 42 contracts
I spoke to the best traders I know in the market yesterday and to a man they said the market looked terrible. Although prices were high, the momentum was totally gone and volume was shrinking. Worse, these conditions prevailed as we headed into May, the onset of the ?RISK OFF? season (click here for ?The Hard Numbers Behind Selling in May?). Best case, it continues to grind sideways in a narrow range. Worst case, it sells off sharply.
The big ?tell? would be how stocks respond to the Friday nonfarm payroll. If it turns into a ?buy the rumor, sell the news? then it would herald the onset of a new correction. That was exactly what we got.
You knew immediately that things were heading south, even though the Dow opened up $44. The big momentum, like Tesla (TSLA), Facebook (FB), Netflix (NFLX), and Amazon (AMZN) rolled over like the Bismarck right out of the gate. Bonds (TLT) also took off like a bat out of hell, not exactly what you want to see when you own stocks.
I spent Thursday night writing up Trade Alerts to sell short the (IWM), the (SPY), and the (QQQ). You only had about 30 minutes when the market waffled indecisively to get these off. As it turned out, I could only get the first two done before the market fell away like a house of cards.
I have already received ecstatic emails from nimble traders who got into the (IWM) August, 2014 $113 puts as low as $3.65 and then saw them soar to $5.25, an instant profit of 44%. This also boosts my year to date performance back to double digits, a welcome development
I have a number of cross hedges going on now in my model portfolio which I should explain, just to show you there is a method to my Madness. The May (SPY) $193-$196 put spread is a short volatility trade that balances out the long volatility and time decay in the (IWM) August $113 puts.
I am long the higher beta (IWM) puts and short the lower beta (SPY) puts. The 35% ?RISK OFF? position I have in the (SPY), (IWM), and the (VXX) will also offset lost profits in my one 10% ?RISK ON? position in the Japanese yen (FXY) put spread. This balancing of multiple risks is what a real live hedge fund trading book looks like.
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.
Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months farther out.
Here are the specific trades you need to execute this position:
Buy 42 May, 2014 (SPY) $196 puts at?????$8.15
Sell short 42 May, 2014 (SPY) $193 puts at..??.$5.78
Net Cost:??????????????????.....$2.37
Profit at expiration: $3.00 - $2.37 = $0.63
(42 X 100 X $0.63) = $2,646 or 2.65% profit for the notional $100,000 portfolio.
