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)
Buy the S&P 500 (SPY) November, 2014 $168-$173 in-the-money vertical bull call spread at $4.17 or best
expiration date: November 21, 2014
Portfolio weighting: 10%
Number of Contracts = 24 contracts
Forget about Ebola and focus on the economy. There is no way that today?s shellacking in the stock market is justified by the healthy state of the US economy.
The $27 dollar drop in the price of oil is leading to a 50-cent plunge in the price of gasoline. That gives consumers and extra $50 billion in their pockets to spend. Merry Christmas retailers (M)!
Who are the biggest single beneficiaries of cheap fuel? The airlines, which have been shot down in flames because an Ebola carrying passenger who recently flew on Frontier Airlines. United Airlines (UA) has suffered an 18% decline since the first week of September, while American Airlines suffered an impressive 20% hit.
This is a roll down to make back the money we just lost on the October $180-$184 vertical bull call spread. At $30, volatility is so sky-high that the (SPY) has to drop another $11 for us to break even on this trade.
That is a staggering 15% down from the September $202 high. I have to remember back to the 2008-2009 crash to find trading conditions this extreme.
The way to make back your money is to go far, far out of the money, and remain short dated in the front month. Fortunately, we have plenty of dry powder to do this.
The S&P 500 (SPY) November, 2014 $168-$173 in-the-money vertical bull call spread accomplishes this. You could handle an entire bear market in a month and still come out ahead.
You can buy this spread anywhere in a $4.10-$4.30 range and have a reasonable expectation of making good money on this trade.
For those who can?t do option spreads stand aside until the market calms down.
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 24 November, 2014 (SPY) $168 calls at?????$17.27
Sell short 24 November, 2014 (SPY) $173 calls at..??.$13.10
Potential Profit at expiration: $5.00 – $4.17 = $0.83
(24 X 100 X $0.83) = $1,992 or 1.99% profit for the notional $100,000 portfolio.