Subscribers hold a dozen March 7 150 puts bought last week for 0.64 or less. I have advised tying them to a 0.49 stop-loss, but you should execute the stop via a 0.49 limit order rather than a 0.49 sell-stop if it looks as though the E-Mini S&Ps are going to open five or more points higher at the bell. That would equate to a DIA opening near 158.30, presumably creating a deluge of put options for sale and therefore an opportunity for market makers to rape puts sellers on the first trade of the day.
If the puts you’ve offered at 0.49 don’t sell in the first 20 minutes, work the order using the option calculator (see inset) as a guide. It shows theoretical values for Feb 7 150 puts with DIA trading at prices ranging from 157.80 to 159.20. The higher number would equate to a 130-point Dow rally and, as you can see, the puts would be worth 0.34 theoretically at that point. As a practical matter, however, I’m guessing that the market makers would drop their bids on the opening to 0.34 if DIA were trading for 158.50 (i.e., rape). While these numbers are all educated guesses (the 18.30 volatility assumption is the trickiest part), once the options begin to trade, you’ll be able to adjust on-the-fly using the calculator to avoid getting beat up any worse than you have to. ______ UPDATE (11:33 a.m. EST): I’ll use 0.45 as the exit price — the worst fill reported in the chat room. That leaves us with $1692 of the ‘house’s money’ to gamble with. For now, there’s no rush to jump back into DIA puts. The next opportunity could be at a bull-trap high just above mid-January’s peaks. That’s where I think this hoax is going next. ______ UPDATE: I am adjusting the ‘official’ exit price down to 0.40, since a fill there was just reported in the chat room. That still leaves us with $1632 of the house’s money to play (relatively) fast and loose.