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) – SELL-STOP LOSS
SELL the S&P 500 (SPY) February 2019 $270-$275 in-the-money vertical BEAR PUT spread at $4.30 or best
Closing Trade
1-22-2019
expiration date: February 15, 2019
Portfolio weighting: 10%
Number of Contracts = 23 contracts
I am going to use the 410-point dive in the Dow Average this morning triggered by worsening China economic data and an ever extending government shut down to reduce my risk.
The biggest threat to a short position here is the reversal of the above. We are too close to the lower $270 strike price and have too many days to run to expiration to accept the current risk/reward ratio.
I am therefore selling my position in the S&P 500 (SPY) February 2019 $270-$275 in-the-money vertical BEAR PUT spread at $4.30 or best.
By coming out here you are at close to cost with a -$230 loss in 15 trading days. Even at this price this position earned its keep by providing us an insurance policy against any sudden downside moves. We made huge profits on the offsetting long positions.
This was a bet that the S&P 500 (SPY) will not trade above $270 by the February 15 option expiration day in 28 trading days.
If you don’t do options, stand aside. We are close to the top of a new range and it is too late to go long or short.
Here are the specific trades you need to execute this position:
Sell 23 February 2019 (SPY) $275 puts at………….………$12.10
Buy to cover short 23 February 2019 (SPY) $270 puts at…….$7.80
Net Proceeds:………………………….………..………….….....$4.30
Loss: $4.40 - $4.30 = -$0.10
(23 X 100 X -$0.10) = -$230
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.