-- Published: Monday, 19 September 2016 | Print | Disqus
Based on reports from subscribers in the chat room who legged into the position detailed here last week, I am tracking the Oct 21 200 – 195 put spread eight times for a net credit of 0.37. As is my custom, I use the worst fill reported, since I never want to be in the position of saying a Rick’s Picks recommendation made money in theory when my subscribers have failed to do so. Nor do I ever want to overstate the profit on any trade, since results could vary significantly from one subscriber to the next. The position detailed above cannot lose money and will produce a profit of $296 if SPY is trading 200 or higher on October 21, when the options expire. However, the gain would increase by $800 for each one-point drop below 200, to a maximum of $4296 at 195 or lower. That would represent a fall of 8.7%, about two-and-a-half times SPY’s plunge last week from near-record highs.
Stay tuned for updates, since I will try to augment our short position, with risk as tightly controlled as possible, if the opportunity should present itself. Essentially, this will entail buy out-of-the-money puts when SPY is close to a rally target, then turning the position into a vertical bear spread by subsequently shorting puts on weakness. Our goal will be to sell the short puts for at least as much as we’ve paid for the ones we are long. The result would be a virtually riskless vertical spread similar to the tracking position described above. This bull market feels to me like it’s on its last legs. However, we should never presume to be able to predict exactly when El Toro will drop dead. Using strategies like the one detailed above is the best way I know of to bet on the bull’s inevitable collapse and to make some bucks while we wait, even if we are wrong. Visit our 24/7 chat room and share timely ideas and real-time results with great traders from around the world. Click on the link for a free trial subscription.
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