Trade Alert - (BA) March 12, 2020 - SELL-STOP LOSS
When John identifies a strategic exit point, he will send you an alert with specific trade information as to what security to sell, when to sell it, and at what price. Most often, it will be to TAKE PROFITS, but, on rare occasions, it will be to exercise a STOP LOSS at a predetermined price to adhere to strict risk management discipline.
Trade Alert - (BA) – STOP LOSS
SELL the Boeing (BA) March 2020 $170-$175 in-the-money vertical Bull Call spread at $2.00 or best
Closing Trade
3-12-2020
expiration date: March 20, 2020
Portfolio weighting: 10%
Number of Contracts = 25 contracts
The worst possible thing the president could have done last night was to ban entry to the US for Europeans. Half of that traffic takes place on Boeing planes. As a result, the stock has crashed a stunning $82, or 34% in two days.
The ban will have absolutely no impact on the epidemic but will cause an immediate recession, which the stock market is now in the process of discounting. The Dow has dropped an amazing 8,000 points, or 27%, in two weeks.
An out-of-the-blue black swan normally causes me about one loss a year of this magnitude. To get two in a week, on top of last week’s loss in bonds, is a once in a century event for this kind of strategy. I was within reach of getting up on the year by next week. That is now out of reach and is discouraging, to say the least.
There is NO strategy that can cope with declines of the speed we have seen this month.
My Mad Hedge Market Timing Index is at a record low of 1, so it is a terrible time to sell. However, I have no choice but to cut my losses here and stop out of my position.
I am therefore selling the March 2020 $170-$175 in-the-money vertical Bull Call spread at $2.00 or best.
I believe that Boeing shares will reach $450 sometime in 2021. In addition, the Boeing 737 MAX, an albatross around the company’s neck for the past year, may get recertified in the coming weeks. So, if you own the stock already, I would keep it.
This was a bet that Boeing (BA) will not trade below $175 by the March 20 option expiration day in 8 trading days. It didn’t work.
Here are the specific trades you need to exit this position:
Sell 25 March 2020 (BA) $170 calls at…........……….….......……$9.00
Buy to cover short 25 March 2020 (BA) $175 calls at….......….$7.00
Net Proceeds:……………………..…….………..……..........…….….....$2.00
Loss: $4.00 - $2.00 = $2.00
(25 X 100 X $2.00) = $5,000.
To see how to enter this trade in your online platform, please look at the order ticket above, which I pulled off of Interactive Brokers.
If you are uncertain on how to execute an options spread, please watch my training video on How to Execute Vertical Call and Put Debit Spreads by clicking here.
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Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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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 close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
