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 - (IWM) – REMINDER – STOP LOSS
SELL the Russell 2000 (IWM) October 2019 $153-$156 in-the-money vertical BEAR PUT spread at $2.50
Closing Trade
10-17-2019
expiration date: October 18, 2019
Portfolio weighting: 10%
Number of Contracts = 40 contracts
If for some reason you were not able to sell the Russell 2000 (IWM) October 2019 $153-$156 in-the-money vertical BEAR PUT spread at $2.50 on Wednesday, you must get out now.
We are too close to the $153.00 strike price and too near to the Friday options expiration tomorrow to continue with this position. The risk/reward is turning against us.
If things go wrong, there is not enough time for them to go right again. Keep this position and you might find yourself in an unlimited risk situation over the weekend where your long put expires in-the-money but your short put expires worthless.
Your consolation is that the Russell 2000 (IWM) October 2019 $137-$142 in-the-money vertical bull spread will expire tomorrow at its maximum value of $5.00. That means the $200 you lost on the short trade will more than be offset by the $1,210 profit on the long side. That’s how hedge funds work.
This was a very short-dated option bet that assumed we wouldn’t see a major stock market rally during the next 10 days. The Brexit deal announced this morning demolished this trade.
This was a bet that the Russell 2000 (IWM) would not trade above $153.00 by the October 18 option expiration day in 10 trading days.
Here are the specific trades you need to exit this position:
SELL 40 October 2019 (IWM) $156 puts at…...................…$3.40
Buy to cover short 40 October 2019 (IWM) $153 put at..….$0.90
Proceeds:………………………….………..………….…....................$2.50
Loss: $2.55 - $2.50 = $0.05
(40 X 100 X $0.05) = $200.
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.
