Subscribers who followed my simple instructions yesterday were able to leg into the remainder of a bearish put spread that we initiated last week. Although we’d been trying to buy DIA puts since New Year’s Eve, when the E-Mini S&Ps peaked a single tick from a potentially very important Hidden Pivot target at 1846.75, the options stayed just out of reach.  Then, on January 17, with stocks ascending, some Feb 7 158 puts finally came our way for around 0.34. Thereafter, it remained only for subscribers to short puts of a lower strike against them for 0.34 or better.

This was easily do-able yesterday, when the Dow Industrials were down 240 points at their intraday low.  The selloff allowed us to short some Feb 7 155 puts for 0.34, giving us a virtually riskless $3 vertical bear spread (x 12) that can produce a maximum gain of $3600 if the broad averages continue to fall over the next two weeks. For now, though, you can sit back and relax, since our bearish bet effectively cost us nothing. As I am wont to remind you, zero zilch nada is how we should value puts when the stock market has been in a bull market that has been chugging along for nearly five years. Click here for two weeks’ free access to the Rick’s Picks chat room, where tradable ideas are served piping hot in real time. _______ UPDATE (January 27, 12:01 p.m. EST): Offer four of the spreads to close for 1.20, good till canceled. ______ UPDATE (January 29, 9:15 p.m.):  The spread was an easy exit today for 1.40 when the Dow was down 220 points at its lows. Imputing the theoretical gain of $480 to the eight spreads we still hold gives us an adjusted cost basis of minus 0.60 (i.e., a credit of $60 apiece). Now, offer four more spreads to close for $2, good till canceled. This price is hardly farfetched, given the 154.90 downside target shown (see inset, a fresh chart). _______ UPDATE (Feb 3, 11:12 a.m. EST): The DJIA is down 180 points at the moment, pushing DIA to a so-far low at 154.83 that lies just 0.07 points from my target.  The spread is getting very close to 2.00, although it is not an easy sale there just now.  Keep at it, since I plan to use the proceeds from the  spread, which has become very profitable, for a parlay bet on the next short-able rally. _______ UPDATE 12:08 p.m.): With the Dow off 264 points at the so-far low, the spread was a 2.03 bid, so I will consider the order filled. That implies an $800 profit. Added to the $480 profit booked earlier on four spreads sold for 1.20 apiece, your theoretical gain is now $1,280.  You still have four spreads to play with, from an original position of 12, for an added potential gain of $1200.  Since the remaining spreads have a cost basis of zero, there is no possibility of a loss.