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) – STOP LOSS
SELL the S&P 500 (SPY) November 2020 $360-$365 in-the-money vertical Bear Put spread at $2.98 or best
Closing Trade
11-16-2020
expiration date: November 20, 2020
Portfolio weighting: 10% down to 0%
Number of Contracts = 23 contracts
I have come to the conclusion that you don’t want to be short as a pandemic is peaking. For the second week in a row, a blockbuster vaccine has been announced, this time by Moderna (MRNA), this time claiming an eye-popping 94.5% effectiveness.
Therefore, even though we have only four days left until expiration, I am stopping out of the S&P 500 (SPY) November 2020 $360-$365 in-the-money vertical Bear Put spread at $2.98 or best. We have crossed the lower strike price and the risk/reward of continuing is no longer favorable.
Fortunately, our loss on this trade is more than offset by the enormous profits we made on the other ten trades going into the election. Fortunately, also, that I cut this position in half ten points lower during the only dip we had in the market last week on Thursday.
Only use a limit order. DO NOT USE MARKET ORDERS UNDER ANY CIRCUMSTANCES.
This was a bet that the S&P 500 (SPY) would not trade above $360.00 by the November 20 option expiration day in 13 trading days.
Here are the specific trades you need to exit this position:
Sell 23 November 2020 (SPY) $365 puts at……….....….………$6.50
Buy to cover short 23 November 2020 (SPY) $360 puts at….$3.52
Net Proceeds:……..........…………………….………..………….….....$2.98
Loss: $4.30 - $2.98 = $1.32
(23 X 100 X $1.32) = $3,036 or 30.69%.
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 by clicking here.
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 on expiration months farther out.
Keep in mind that these are ballpark prices at best. After the alerts go out, prices can be all over the map.
