The February 158 put options for which subscribers paid 34 cents when stocks were topping out in January came home to roost yesterday, trading as high as 4.50. Subscribers would have owned them as part of a spread that included an equal number of Feb 155 puts shorted for 34 cents when DIA swooned briefly in mid-January. Since both sides of the position were done for the same price, the spread carried no risk of loss and a potential gain of as much as $3600 (for 12 spreads, the number recommended).

After DIA began to fall sharply on January 22, I suggested closing out four of the spreads for 1.20; then, a few days later, closing out four more for 2.00.  Anyone who followed my directions exactly would have realized a profit of $1280 so far. The orders were to have been treated as spread orders, meaning they required no tending. One could have simply parked 1.20 and 2.00 limit orders, respectively, with one’s broker. For the record, I never consider my recommendations as having produced an actual gain or loss unless subscribers report having made or lost real money themselves.

At present, four $3 vertical bear spreads remain from the original position, and they would add $1200 more in profits to the $1280 total if exited with DIA trading below 155 come Friday’s expiration. I’ll likely recommend holding them until then, but buying some out-of-the-money calls against them in the meantime if DIA falls to a Hidden Pivot target where a strong bounce would appear likely according to my proprietary forecasting system.  The first place we might have such an opportunity is with DIA at or very near 151.63, a Hidden Pivot target that implies the DJIA cash index is about to fall at least 180 more points before turning around. Accordingly, I am recommending the purchase of four Feb 7 152 calls if and when DIA gets within 0.06 points of the target. Stop yourself out if the puts subsequently trade for 0.10 less than the bid that was shown at the time the puts are purchased. If the position survives for at least 15 minutes, check in the chat room for further, timely guidance.

Could you execute these trades? Like many option plays proffered in the Rick’s Picks ‘Touts’ section, they are intended for traders of all levels of experience, especially options novices who have never cashed a winning ticket. My goal is to make Rick’s Picks, and the trading webinar that I offer from time to time, pay for themselves.  Click here for a free two-week trial with chat-room access and you can ask subscribers themselves how they’ve fared. _______ UPDATE (February 5, 12:07 a.m. EST): Sell the remaining four spreads if DIA plunges below 152 today or tomorrow. The precise HP target is 151.63, and it is the closest equivalent I can find to the 15209 downside target identified in today’s DJIA tout. (FYI, on DIA’s daily chart the coordinates are as follows: A=165.05 on 1/21; B=157.51 on 1/27; and C= 159.17 on 1/28).  Profits from our initial position would probably exceed $2000 if the four contracts that remain are closed out with DIA below 152. As I noted in the chat room, my intention is to parlay our gains on another bearish bet near the presumptive top of the next rally. _______ UPDATE (11:38 a.m.): I haven’t suggested stopping ourselves out of the remaining four put spreads because time decay is working heavily in our favor at the moment. The spread is currently (an absurdly wide) 2.20/3.20 bid/asked. But it will go to $3 if the Dow cannot rally 100 points by Friday.  The spread is 1.04 in-the-money (or 104 Dow points) right now, with DIA trading 153.96. For now, you can offer it (4x) for 2.70, day order. _______ UPDATE (11:44 p.m.): Continue to offer the spreads to close for 2.70, with 0.10 of discretion. _______UPDATE (February 6, 2:38 p.m.):  Offer the Feb 155-158 put spread to close for 2.00, good through tomorrow.