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 - TAKE POSITION TO ZERO
SELL the S&P 500 (SPY) April 2020 $280-$290 in-the-money vertical BEAR PUT spread at $9.85 or best
Closing Trade
4-3-2020
expiration date: April 17, 2020
Portfolio weighting: reduce from 10% to 0%
Number of Contracts = 12 contracts
Market Volatility is getting crushed today, greatly boosting the value of our deep in-the-money put spreads. My experience tells me that when the market offers you a big check, you grab it with both hands and run like hell.
I am therefore selling the last of my S&P 500 (SPY) April 2020 $280-$290 in-the-money vertical BEAR PUT spread at $9.85 or best, taking my net position down to zero.
By coming out here, you get to earn 92.10% of the maximum potential profit in this position. The risk/reward of continuing with this position is no longer favorable. That amounts to a welcome $2,100 or 21.60% in 5 trading days in only 4 trading days in these tempestuous markets.
The pandemic is growing exactly according to my model, doubling every three days. The news over the weekend couldn’t be worse. Global cases have topped 1 million by late tomorrow. Italy and Spain are losing 1,000 people a day. US cases have rocketed to 250,000 and deaths over 6,000 (click here for the update).
We are now almost certainly in for a repeat of the 1918 flu epidemic, but with modern medicine.
We have learned that the president has extended the economy’s self-induced coma to April 30. That is short of the true target by a month.
We are about to see a parade of the worst economic numbers in history. How will the market react? Not good, not good.
This position also had the advantage in that it over-hedged our existing long positions in the (VXX) puts, our short volatility positions.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.
Simply enter your limit order, wait five minutes, and if you don’t get done cancel your order and lower your offer by ten cents with a second order.
This was a bet that the S&P 500 (SPY) would not trade above $280.00 by the April 17 option expiration day in 14 days. That was up 37 (SPY) points, or $3,400 Dow Average points from here.
Remember, the gold standard in this epidemic is no human contact whatsoever.
Here are the specific trades you need to execute this position:
Sell 12 April 2020 (SPY) $290 puts at……….............….………$40.00
Buy to cover short 12 April 2020 (SPY) $280 puts at………….$30.15
Net Proceeds:………………………….……............…..………….….....$9.85
Profit: $9.85 - $8.10 = $1.75
(12 X 100 X $1.75) = $2,100 or 21.60% in 4 trading days.
To see how to enter this trade in your online platform, please look at the order ticket below, 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 a Vertical Bear Put Spread” 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.
