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) – TAKE PROFITS
SELL the Russell 2000 (IWM) October 2019 $153-$156 in-the-money vertical BEAR PUT spread at $2.90
Closing Trade
10-16-2019
expiration date: October 18, 2019
Portfolio weighting: 10%
Number of Contracts = 40 contracts
There is a slight dip in the market today due to fading confidence in the China nontrade deal announced last Friday. American farmers are asking how much of their crops the Chinese will buy and when and there are no answers.
We are too close to the $153.00 strike price and too close to the Friday option expiration in two days to continue with this position. The risk/reward is turning against us. If things go wrong, there is not enough time for them to go right again.
I am therefore selling the Russell 2000 (IWM) October 2019 $153-$156 in-the-money vertical BEAR PUT spread at $2.90. By coming out here you get to reap 77.78% of the maximum potential profit. That works out to $1,400 or 13.72% in 8 trading days.
This was a very short-dated option bet that assumed we wouldn’t see a major stock market rally during the next 10 days.
This was a bet that the Russell 2000 (IWM) would not trade above $153.00 by the October 18 option expiration day in 10 trading days.
Here are the specific trades you need to execute this position:
SELL of 40 October 2019 (IWM) $156 puts at….............…$4.20
Buy to cover short 40 October2019 (IWM) $153 puts at….$1.30
Proceeds:………………………….………..………….............….....$2.90
Profit: $2.90 - $2.55 = $0.35
(40 X 100 X $0.35) = $1,400 or 13.72% in 8 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.