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.
BUY the Russell 2000 (IWM) December 2018 $130-$140 in-the-money vertical BULL CALL spread at $8.80 or best
Opening Trade
12-7-2018
expiration date: December 21, 2018
Portfolio weighting: 10%
Number of Contracts = 11 contracts
I believe that the Russell 2000 (IWM) is defining the bottom of a new range from which it will spring to much higher highs.
Why buy the Russell instead of the S&P 500 (SPY)? Because small companies do virtually no China business, which is roiling the markets daily. Big companies get about 60% of their earnings from abroad.
With the Mad Hedge Market Timing Index at 12, close to a 3-year low, there is a high chance that this will be a successful trade.
I am therefore buying the Russell 2000 (IWM) December 2018 $130-$140 in-the-money vertical BULL CALL spread at $8.80 or best.
I am using an unusually wide $10 spread in the strike prices to account for today’s extreme volatility.
Don’t pay more than $9.40 or you’ll be chasing.
If you don’t do options, buy the (IWM) ETF for a bounce and set a mental 10% stop loss limit.
This is a bet that the Russell 200 (IWM) would not trade below $140 by the December 21 option expiration day in 14 trading days. It is also a bet that the (IWM) will NOT drop below the February $142 low.
With many positive yearend effects about to kick in, that is a bet I am willing to make. Buy when traders are jumping out of windows. That is always a great trading rule.
Here are the specific trades you need to execute this position:
Buy 11 December 2018 (IWM) $130 calls at………….………$15.00
Sell short 11 December 2018 (IWM) $140 calls at…………...$6.20
Net Cost:………………………….………..……………..….....$8.80
Potential Profit: $10.00 - $8.80 = $1.20
(11 X 100 X $1.20) = $1,320 or 13.63% in 14 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 on How to Execute Vertical Call and Put Debit Spreads by clicking here.
You must be logged into your account to view the video.
Please keep in mind that these are ballpark prices only. There is no telling how much the market can move by the time you get this.
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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 close to expiration.
If you don't get done, don't worry. There are another 250 Trade Alerts coming at you over the coming 12 months.
