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 in practice. 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, however, and it will produce a gain of exactly $296 if SPY is trading 200 or higher come 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 an additional fall of 8.7%, about two-and-a-half times the magnitude of 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 arise. Essentially, this will entail buying out-of-the-money puts when SPY is close to a rally target, then turning the position into a vertical bear spread by shorting puts on any subsequent weakness. Our goal will be to short the puts for at least as much as we’ve paid for the ones we are long. The result would be a virtually riskless vertical bear spread similar to the tracking position noted 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, however deservedly, will drop dead. Using strategies like the one above is the best way I know of to bet on the bull’s collapse and to make some bucks, even when we are wrong, while we wait for an event that is inevitable.