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 $153-$156 in-the-money vertical BEAR PUT spread at $2.55 up to $2.75
Opening Trade
10-4-2019
expiration date: October 18, 2019
Portfolio weighting: 10%
Number of Contracts = 40 contracts
I am going to use today’s jump in the market off of the September Nonfarm Payroll Report to lay out another short position in the Russell 2000. That will give me insurance to cover my long in the (IWM) much lower down.
I am therefore buying the Russell 2000 (IWM) October 2019 $153-$156 in-the-money vertical Bear Put spread at $2.55 or best.
Don’t pay more than $2.75 or you will be chasing.
Remember, in down markets, small cap stocks represented by the Russell 2000 fall 1.5 times as fast as large ones.
This is a very short-dated option bet that assumed we won’t see a major stock market rally during the next 10 days. With China trade talks scheduled for October 10, I don’t believe investors will chase the market until then.
This is a bet that the Russell 2000 (IWM) will not trade above $153.00 by the October 18 option expiration day in 10 trading days.
If you don’t do options, stand aside. This is a simple hedge against our existing long in the (IWM).
Here are the specific trades you need to execute this position:
Buy 40 October 2019 (IWM) $156 puts at………….………$7.70
Sell short 40 October 2019 (IWM) $153 puts at…....…….$5.15
Net Cost:………………………….………..…………..........….....$2.55
Potential Profit: $3.00 - $2.55 = $0.45
(40 X 100 X $0.45) = $1,800 or 17.64% in 10 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.
