Trade Alert - (BAC) January 8, 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.

Trade Alert - (BAC)-STOP LOSS AND ROLL DOWN

Sell the Bank of America (BAC) February, 2015 $16-$17 in-the-money vertical call spread at $0.72 or best

Closing Trade

1-8-2015

expiration date: February 20, 2015

Portfolio weighting: 10%

Number of Contracts = 114 contracts

 

You can sell this put spread anywhere within $0.68-$0.75 range and limit your losses.

It is clear that we are going to have to trade a lot more than last year to earn our crust of bread than we did in 2014, and exercise much more diligent risk control as well. It also means stopping out of losers or rolling down strikes quicker than we have in the past to protect gains elsewhere.

I am therefore going to use the two-day, 500-point rally in the Dow Average to roll down my strikes in my Bank of America (BAC) position. The goal here is to make your portfolio bomb proof, and protect it from the sudden downdrafts that have, so far, become a regular feature of trading in 2015.

That means selling you existing Bank of America (BAC) February, 2015 $16-$17 in-the-money vertical call spread at $0.72, and then buying the Bank of America (BAC) February, 2015 $15-$16 in-the-money vertical call spread at $0.87 to replace it. This moves the breakeven for the position down a full dollar to $15.87 in the (BAC) share price.

This cuts my total loss on both Bank of America positions from $1,824 to $329, after we net out the profit and loss on the two positions. That?s assuming (BAC) shares stay over the $16 by the February expiration.

The collapse of German 10 year bund yields is clearly dragging yields down all around the world, including those for US Treasuries. That has an immediate adverse effect on the banks in the form of narrower cost of funds and lending spreads.

This put the kibosh on the financials for now, and justifies my turning wimpy on the sector. But I do want to keep a position here in case the long awaited turn the bond market finally comes when I an sleeping, which isn?t very often.

It is also prudent to pull in your horns on anything risky the day before a nonfarm payroll report.

The Trade Alert to buy the Bank of America (BAC) February, 2015 $15-$16 in-the-money vertical call spread will follow in a few minutes.

Keep in mind that the options market is highly illiquid now, so don?t hold me to these prices. They are ballpark estimates, at best.

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 114 February, 2015 (BAC) $16 calls at?????$1.47

Buy to cover short 114 February, 2015 (BAC) $17 calls at...$0.75
Net Cost:??????????????????.....$0.72

Loss: $0.88 - $0.72= $0.16

(114 X 100 X -$0.16) = -$1,824 or -1.82% profit for the notional $100,000 portfolio.