Trade Alert - (SPY) October 29, 2014

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 - (SPY) ? STOP LOSS

Buy to cover short the S&P 500 (SPY) November, 2014 $197-$202 out-of-the-money vertical call spread at $2.60 or best

Closing Trade-NOT FOR NEW SUBSCRIBERS!

10-29-2014

expiration date: November 21, 2014

Portfolio weighting: cut remaining half position, from 5% to zero

Number of Contracts = 20 contracts

 

This is probably the market top here, and the (SPY) should roll over once the Fed announcement is made. However, I can?t take any more pain on this trade.

You can limit your losses here through covering your short position in this spread anywhere from $2.50-$2.80.

In any case, we have already made back the loss in all the other long equity positions we picked up at the market bottom two weeks ago in the (SPY), (BAC), (DAL), and the (GILD).

This time I bought fire insurance, and the house did burn down!

When I put on this trade a week ago, I thought it would take until the end of the year before the S&P 500 (SPY) challenged new all time highs.

So selling short the November, 2014 $197-$202 out-of-the-money vertical call spread with a November 21 expiration looked like a pretty safe bet.

Instead, it has taken two weeks. While the 10% correction that started with the Alibaba IPO in September was predictable and foreseeable, the 7% bounce off the bottom in seven trading days is truly unbelievable.

However, we have to trade the market we have, not the one we want. So I am cutting my position here in half to protect my 40% year to date gain.

I may later roll this half position up to a November, 2014 $202-$207 out-of-the-money vertical call spread at a later time, if the prices warrant it. If I do, I?ll shoot out the Trade Alert immediately.

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.
Keep in mind that these are ballpark prices only. Spread pricing can be very volatile on expiration months farther out.

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

Buy to cover short 20 November, 2014 (SPY) $197 calls at..?.$3.56
Sell 20 November, 2014 (SPY) $202 calls at???????.?$0.96

Net Proceeds:??????????????????.....$2.60

Loss: $2.60 - $0.49 ? $2.11

(20 X 100 X $2.11) = -$4,220 or 4.22% loss for the notional $100,000 portfolio.