It was probably too much to ask that shorts remain cool and calm this week, even as the business pages reflected growing alarm about the possible full-blown return of a global Great Recession. Yesterday, bears were a study in self-mutilation as they battled their own demons. Some merely covered short positions on the explosive opening bars, but others undoubtedly doubled down with each new upthrust. The latter ended the day badly on the ropes, with stocks barely correcting from their intraday highs. Under the circumstances, I’ll recommend exiting the four put spreads that remain from 12 bought when the broad averages were topping in mid-January.

Gains from partial profit-taking reported by subscribers so far total $1280, but I have been shooting for $2000 with the closure of the last four spreads.  They settled at 1.83 yesterday, but I would suggest offering them for 2.00 when stocks open Friday morning (with a qualifier noted below).  If they go unsold at that price, offer them down to as low as 1.60, starting at 1.90 and working your way lower during the first 30 minutes of the session. You should also check here for updates, since I may suggest a change in tactics if DIA moves sharply one way or the other. And be sure to take note, before the opening, of any gains or losses overnight in the E-Mini S&P, since the DIA put spreads would become an easy sale for $2 or more if the futures are down more than five or six points at the bell. _______ UPDATE (12:07 p.m. EST): I’m going to assume an exit price of 1.60 for the Feb 155-158 put spread. It was do-able for more than that an hour after the opening-bar short-squeeze, when DIA fell to a so-far intraday low of 156.05. Imputing a 1.60 gain on four spreads to the $1280 gain already booked would yield a total profit on the position of $1920. We’ll wager a portion of this sum on a short bet at the next promising rally target. _______ UPDATE (1:17 p.m.):  Using a minor rally target of 157.37, let’s try to buy 12 March 7 150 puts for around 0.64. (The intention is to buy the puts in any case, if and when DIA ascends to within 0.04 points of the target. It is very close at the moment.)  Stop yourself out if the puts subsequently trade for 0.49.  This will limit our loss, in theory, to about $180. The trade is intended as a continuation of the short position just cashed out, and any profits or losses that it generates will be imputed to the $1920 gain you would have realized if you had followed my earlier instructions for legging into the Feb 155-158 vertical bear spread. [Note: Chat-roomers reported the ordered filled @ 0.64 at around 1:43 p.m., when the puts were offered at that price.] One reason I like the trade is that, coming on a Friday afternoon, in the face of a short squeeze that has persisted for three days, it is very difficult to get short. We are putting ourselves in harm’s way, with more than the usual uncertainties, and that is the only way Mr Market will allow one to get short. Wherever this short-squeeze dies, it will not be easy to pick the top.