Follow Up to Trade Alert - (SPY) June 1, 2015
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.
Trade Alert - (SPY) - UPDATE
Buy the S&P 500 SPDR?s (SPY) June, 2015 $202-$207 in-the-money vertical bull call spread at $4.40 or best
Opening Trade
5-29-2015
expiration date: June 19, 2015
Portfolio weighting: 10%
Number of Contracts = 23 contracts
This is your last chance to get the June options off, which expire in only 15 trading days.
You can pay all the way up to $4.60 for this spread and it still makes sense. If you can?t do the options, stand aside, don?t do it.
I think the market will continue to grind sideways through the current summer. If we go up, it will be a slow climb of a wall of worry. We are not going to crash in the next three weeks, the only way you can lose money on this position.
The breakeven point of this trade is an expiration print of $206.40 at the June 19 expiration. If we trade down there before then, stop out and take a small loss. In other words, we would need to see a $7.4 point, or 3.5% correction from the top.
Sideways, then up. That is the short version.
Now for the long one.
Markets are caught in a vice right now. It is too late to buy and too soon to sell. So, institutions are sitting on their hands, index charts are doing their best to imitate the topography of Kansas, and the Volatility Index (VIX) is plumbing nine year lows.
The stock market has seen the narrowest range in a century during the first five months of this year.
This is anything but an ideal environment for traders. No wonder they are fleeing to the markets for foreign exchange, oil, and even Shanghai!
All of the stock market action, and outperformance, is confined to a handful of names and sectors. Think Apple (AAPL), biotech (IBB), health care (XLV), technology (XLK), and cyber security (HACK).
If you are in these, this year is not so bad. If you aren?t, or are indexing, you better start looking for a new job on Craig?s List.
In the meantime, corporate earnings are continuing their relentless drive upward. Technology and productivity improvements are the main driver.
Zero interest rates and the hangover from the Federal Reserve?s aggressive policy of quantitative easing are willing co conspirators. Some $4 trillion in Treasury notes, bills, and bonds still sit on the Fed?s groaning balance sheet.
And while QE is gone and dead in the US, it continues full speed ahead in Europe, Japan, and China, which account for 35% of the planet?s GDP.
Therefore, the American stocks that look expensive now become fairly priced in three months and a bargain in six months. How far in advance do you want to front run the attractive valuations?
In addition, you have to consider the harsh reality that there is absolutely nothing else to buy. Low yielding bonds at a 30-year peak? Non-yielding gold or commodities? Oil after a ferocious 45% price increase in 11 weeks?
How about collectable French postage stamps? Beanie babies anyone?
The fact is that equities have become the high yield instruments of our day. You can get 2% for the S&P 500, and 4% plus for damaged names like AT&T (T), Altria Group (MO), and Conoco Phillips (COP).
Did I hear 11.40% for Linn Energy (LINN)?
The world is still on a giant paper chase, as it has been for the last six years. The only difference now is that we are shifting from fixed income to equity script.
This is all why I am running a hefty 80% cash position in my model trading portfolio. I would have 100%, but you aren?t paying me to do nothing.
Therefore, I don?t expect to see any more than a 5% mini correction in the markets this summer, or 110 points in the (SPX) and 1,000 points in the Dow Average (which, by the way, broke its 200 day moving average on Friday).
If, by the grace of God, we get an almost forgotten 10% correction, you should jump in and buy stocks with both hands.
Stocks are almost certainly flying to new all time highs going into the end of 2015. I?m looking for at least a $225 print, a gain of 6.6% from here. If you cash out now, you?ll be kicking yourself around the Christmas tree.
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:
Buy 23 June, 2015 (SPY) $202 Calls at?????$9.97
Sell short 23 June, 2015 (SPY) $207 Calls at..?$5.57
Net Cost:??????????????????.....$4.40
Potential Profit: $5.00 - $4.40 = $0.60
(23 X 100 X $0.60) = $1,380 or 1.38% profit for the notional $100,000 portfolio.
