Hitting Two Home Runs in One Day

Those of you who are paid subscribers have the good fortune of waking up to a bounty of riches this morning.

Both Gilead Sciences (GILD) and the Japanese yen (FXY) have made gap moves in your favor overnight. Your long position in (GILD) saw a nice little $2 pop to the upside, and your short in the (FXY) just got whacked in the knees, down a full $1.

As a result, the Trade Alert model-trading portfolio is now up +4% on the year. It?s not exactly knocking the ball out of the park, but should be enough to keep you in fine Chardonnay for the rest of the year. And compared to most other suffering, money losing hedge fund traders, it is more than adequate.

If you followed my advice, your existing positions in these two securities are now close to their maximum expiration value. However, as is so often the case with deep in the money options with only days to expiration, they have become highly illiquid.

For example, the February (FXY) $87 puts are trading at $6.00-$6.90 on the screen, against an intrinsic value of $6.22 ($87 – $80.78 in the cash market = $6.22). So a market order to sell would most likely wipe out your entire profit.

So I am going to run my positions into expiration, given that we only have six trading days to go. These are my last two positions, so I also have an excess of dormant, unused cash.

I am trying to maintain some discipline here and restrict myself to only buying low and selling high. I know this sounds revolutionary, but it should work. Like you, I am not paid according to the volume of Trade Alerts I issue, only on their end results.

However, this market has shown a pronounced tendency to Giveth, and then abruptly Taketh Away. So, if you don?t want to wait until next week to collect your winnings and free up margin, you can put in some high limit orders to sell.

The Gilead Sciences (GILD) February, 2015 $35-$37 in-the-money bear put spread has an intrinsic value here of $5.00, so you can probably get a $4.95 offer done.

The Currency Shares Japanese Yen Trust (FXY) February, 2015 $84-$87 in-the-money vertical bear put spread has an intrinsic of $3.00, so $2.97 probably gets executed. If it doesn?t just re-enter the order tomorrow and try again, or lower your limit by a penny.

Congratulations, and on to the next one.

For me that is going to be an opportunistic short term long position in the S&P 500 (SPY) February 20 expiring options.

It?s rare to see an options spread with only six trading days to expiration offering so much money. But with the Volatility Index (VIX) holding in at a lofty 17.70%, we can take in a nearly 2% profit with a near strike that is a full 2% out of the money.

That means the S&P 500 (SPY) has to drop a hefty $4.60 by Friday next week for you to lose money on this position.

I know that?s not impossible in this uncertain environment. But I think that we are in nothing more than a long, sideways correction in a major long-term major uptrend, so this should work.

Traders are confused and disoriented, thanks to the massive one-way moves in oil and bonds in recent months. Many long tested models have blown up.

So rather than continue to hemorrhage money, they are giving up. The large intraday moves and sky-high volatility may continue. But I don?t expect any large sustainable net moves in the near future.

You are going to have to be especially vigilant with your stop loss on this (SPY) position, which I shall put at $202, as there is so little time left to expiration.

The 50 day moving average at $204 should give us plenty of support on the downside, and enough time to make it to expiration and get out whole.

Since this is a big contract and fairly close to the money, there should be plenty of liquidity right up to the last day, if we have to stop out.

GILD 2-11-15

FXY 2-11-15

Sovaldi - PillsTime for another Dose of Gilead Sciences

 

Japanese GirlIt?s All Over for the Yen