Trade Alert - (SPY) July 10, 2020

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 - (SPY) – TAKE PROFITS

SELL the S&P 500 (SPY) July 2020 $335-$340 in-the-money vertical BEAR PUT spread at $4.97 or best

Closing Trade

7-10-2020

expiration date: July 17, 2020

Portfolio weighting: 10%

Number of Contracts = 23 contracts

It looks like the market is going to let us out early on this position this morning, nearly trading at its maximum potential value of $5.00.

I didn’t believe the stock market was going to hit a new all-time high in the next three weeks. After the greatest rally in market history, I think we were long overdue for some sideways range trading.

That is exactly what happened.

Stocks are now far more expensive than they were in January. Government bailout money won’t hit the economy for months. What has been handed out has been done so incompetently.

Only 6% of small companies were able to qualify for the Paycheck Protection Program before it ran out of money. Some 52% of all small companies are expected to go bankrupt this year.

With 95.7% of the maximum potential profit in this position in hand, it is time to say hasta la vista. The risk/reward of continuing is no longer favorable. We have also benefited enormously from time decay and the plunge in volatility over the past week.

I am therefore selling the S&P 500 (SPY) July 2020 $335-$340 in-the-money vertical BEAR PUT spread at $4.97 or best. By coming out here, you get to take home $1,541, or 15.58% in 17 trading days.

Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES. If you can’t get this price, just hold out until the July 17 option expiration in five trading days and collect the full $5.00 price.

This was a bet that the S&P 500 (SPY) would not trade above $335.00 by the July 17 option expiration day in 21 trading days. That was up 23 (SPY) points, or $2,000 Dow Average points from there.

Here are the specific trades you need to exit this position:

Sell 23 July 2020 (SPY) $340 puts at……….............….………$26.00

Buy to cover short 23 July 2020 (SPY) $335 puts at………….$21.03

Net Proceeds:…………………………...........………..………….….....$4.97

Profit: $4.97 - $4.30 = $0.67

(23 X 100 X $0.67) = $1,541, or 15.58% in 17 trading days.

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 by clicking here.

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.

Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.

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