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) – STOP LOSS
SELL the S&P 500 (SPY) November 2020 $360-$365 in-the-money vertical Bear Put spread at $4.25 or best
Closing Trade - NOT FOR NEW SUBSCRIBERS
11-12-2020
expiration date: November 20, 2020
Portfolio weighting: decrease from 20% to 10%
Number of Contracts = 23 contracts
It’s not often that you have a short position in the (SPY) go $29 against you and you get to escape at close to your breakeven price. I held on to this position in the face of monster losses because I thought exploding Covid-19 cases would take the market back down.
That is what happened today when US Corona cases hit an incredible 140,000 today. Hospitals everywhere are filling up. In addition, Fed governor Jay Powell threw fat on the fire making cautious comments about the economy.
Another bonus for this trade is that it enabled us to indirectly catch a crash in the volatility market (VIX) from $40 to $22. That crushed the value of our short puts.
Risk control demand I cut this position in half, even though I still believe that it will expire at its maximum profit point at the November 20 option expiration next week. We have major performance to protect. By bailing on this one position, it is much easier to continue with our one remaining short in the (SPY).
You never know when they are going to announce another miracle vaccine drug over a weekend, as just happened. Moderna (MRNA) is hinting it may be just about to do that. It is better to go into the weekend with one short, instead of two.
I am therefore reducing my position by half and selling the S&P 500 (SPY) November 2020 $360-$365 in-the-money vertical Bear Put spread at $4.25 or best.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.
This was a bet that the S&P 500 (SPY) will not trade above $360.00 by the November 20 option expiration day in 13 trading days.
Here are the specific trades you need to execute this position:
Sell 23 November 2020 (SPY) $365 puts at……….....….………$12.50
Buy to cover short 23 November 2020 (SPY) $360 puts at….$8.25
Net Proceeds:………………...........………….………..………….….....$4.25
Loss: $4.25 - $4.50 = $0.25
(23 X 100 X $0.35) = $575 or -5.55%.
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.
