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 - (IWM) - BUY
BUY the Russell 2000 (IWM) October 2019 $137-$142 in-the-money vertical Bull call spread at $4.45 up to $4.70
Opening Trade
10-1-2019
expiration date: October 18, 2019
Portfolio weighting: 10%
Number of Contracts = 22 contracts
The disastrous US Manufacturing PMI in August collapsing from 47 to 42.9 triggered a heart-wrenching 400-point dive in the Dow average. That's the lowest ISM level since 2009.
Manufacturing, some 10% of the US economy, is clearly in recession, thanks to the trade war-induced loss of foreign markets. A strong dollar that overprices our goods doesn’t help either.
This has served on a platter a dramatic ten-point selloff in the Russell 2000 (IWM). It has also taken the Volatility Index (VIX) up to $19, close to the sweet spot for strapping on new options spreads.
I am therefore buying the Russell 2000 (IWM) October 2019 $137-$142 in-the-money vertical Bull call spread at $4.45 or best.
This is a very short-dated option bet that assumed we won’t see a major stock market collapse during the next 13 days. With China trade talks scheduled for October 10, I don’t believe investors will tank the market until then.
Also, with ultra-low interest rates and foreign capital pouring into America driving up the US dollar, I don’t believe the downside risk in the market is more than 10%. The (IWM) has just done a 6.3% swan dive. Our upper strike price of $142 is below the 2019 low.
Don’t pay more than $4.70 or the risk/reward will go against you.
This is a bet that the Russell 2000 (IWM) will not trade below $142.00 by the October 18 option expiration day in 13 trading days.
If you don’t do options, stand aside. There are no good outright short plays with the market down this far.
Here are the specific trades you need to execute this position:
Buy 22 October 2019 (IWM) $137 calls at………..………$12.00
Sell short 22 October 2019 (IWM) $142 calls at………...$7.55
Net Cost:……………............………….………..………….….....$4.45
Potential Profit: $5.00 - $4.45 = $0.55
(22 X 100 X $0.55) = $1,210 or 12.46% in 13 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.
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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.
