S&P (Equity)

We bought four January 129 puts for 0.31 based on an intraday recommendation made in the chat room and via e-mail.  Use a 0.21 stop-loss for now.  This means you should sell the puts at-the-market if they trade for 0.21 or less. _______ UPDATE (3:42 p.m. EST):  This speculation proved short-lived when the broad averages took another leg up on word of a fiscal-cliff deal. The trading loss on a 0.20 stop-out was $44.  I remain keen on getting short early in 2013, but we'll wait for a better opportunity.

We own four January 134 calls @ 0.34.  Continue to offer eight January 137 calls short against them for 0.36. Flat holiday retail sales and sinking hopes for financial Europe are turning this play into a longshot bet. However, it's always possible that Wall Street's best and brightest, fueled by hysterical short-covering at the start of the New Year, will succeed in creating one last opportunity to distribute stocks before They pull the rug. If weakness prevails this week, my minimum downside objective would be the 115.72 midpoint of the pattern shown.

With SPY approaching a 122.79 midpoint support, you could have bought January 134 calls for anywhere from 0.32 to 0.35.  I'll assume four purchased for 0.34, and although that would imply a stop-loss at 0.19, we'll hold onto them for a while without a stop.  Now, offer eight January 137 calls short for 0.36. As traders will doubtless have surmised, it will take a powerful rally to get this offer filled. 

With a Santa rally to as high as 137 possible, I suggested legging into butterfly spreads to leverage the bullish scenario risklessly. An energetic subscriber has done just that, acquiring two January call butterflies: the 125-130-135 for a net credit of 1.35 (nice work!); and the 134-137-140 for a 0.31 debit. Combining the two will give him profitability over the vast price range $123-$141, with no loss possible in theory no matter what. His maximum theoretical profit would be $635 per butterfly with SPY trading at 130.00 when the January calls expire on the 20th of the month. However, the worst he could do, with SPY outside of the range 125-135, would be to make $135 per spread. The subscriber inquired in the chat room about cashing out early if SPY does exactly what we want it to do -- i.e., make a beeline for the 130 strike.  I've furnished an answer using a McMillan option calculator (see inset).  I'll leave this tout posted for a while, since it is likely to be helpful to anyone wanting to put on the butterfly spread in the days ahead.  We have not done so officially because my preference is to leg into the position at swing highs or lows. The subscriber found one of his own, however, and his diligence has paid off with a bullish position that cannot lose even if SPY collapses and which has the potential to produce a profit of as much as $635 per spread if stocks stay strong into the New Year.  In the meantime, I will put out an alert if I see an opportunity to leg on the position over the next week or so. _______ UPDATE (December 8, 11:18 p.m. EST): Yesterday's plunge has not yet produced an abcd pattern clean enough to

If SPY relapses to the 131.86 downside target given here earlier, buy two June 132 calls as detailed here yesterday.  If you are buying them to hedge the short position we hold in the E-Mini S&Ps, 50 option deltas per futures contract will suffice.   Please note that an upthrust today exceeding 134.61 would be hazardous to bears over the near term, even if it wouldn't necessarily presage a run-up to new recovery highs. ______ UPDATE (May 19): Boredom ran out the clock on us, so let's cancel the trade for now.

We're short the ES, but I wanted to provide traders with a way to go long 'against-the-box' using this vehicle, since the downside target at 131.86 is such a hot little temptress. It is shortly before 3 a.m. in New York, and for whatever reason, my Tradestation platform is not displaying bids and offers for SPY options. Because of this, I'll have to wing it with a recommendation that you buy two June 132 calls if and when SPY gets within a dime or so of the target. If you are hedging the short in ES, you'll need to acquire 50 deltas worth of calls for each contract. All who attempt this trade should stop the position out if SPY hits 131.74.

The two patterns shown in the chart yield precisely the same target, 136.25, so we'll plan on shorting there if and when it is reached. Specifically, I'll recommend buying four March 136 puts, which would be well priced at around 2.05-2.15. Since this looks like a high-odds spot for a reversal, and because it could be precipitous and opportune, we'll be on high alert for any downturn occurring from somewhere beneath the actual target. Anything above 134.00 would be in potential camouflage territory.  I am grateful to an alert Pivoteer, Steve Frewin, for spotting these coincident patterns. I might have overlooked them had it not been for his query. _______ UPDATE (February 23):  We'll put the target aside for now, since SPY has generated a bearish impulse leg of daily-chart degree.

Stayed tuned for intraday guidance. I detailed plans here earlier to leverage an expected rally to 136.25 by buying the Feb 133/136/139 butterfly spread. (You can access the full strategy by selecting "DIA" in the "All Picks by Issue" pulldown.)  We'll back away for the moment, however, since recent weakness hinted of an imminent fall. If so, that would allow us to put on the butterfly more easily at attractive prices.  We could also try legging into the position if DIA rallies, shorting the Feb 133/136 vertical bull call spread to start. _____ UPDATE (January 25):  We'll put this trade on ice for the moment, since it's just too darned hard to buy bull spreads at bargain prices if stocks only move in one direction day after day, week after week, month after month.

SPY appears hellbound for at least 136.25, a Hidden Pivot that comes from the weekly chart, where A=87.00 on July 10.  Let's try a very low-risk directional play, butterflying the Feb 133/136/139 strikes.  To put the position on, and to virtually eliminate theoretical risk, we'll need to short two Feb 136 calls for as much as we pay for the offsets -- a single Feb 133 call and a Feb 136 call.  That would effectively be "doing" the butterfly for "even' (i.e., no credit or debit), and it would yield a maximum theoretical profit of $300 per butterfly with the stock trading at 136 on expiration day (February 18). We'll want to be careful about putting on this position, since little errors in a three-sided position can whittle away our edge. We may wind up legging into the position by buying a Feb 133-Feb 136 vertical bull spread when SPY dips to a Hidden Pivot low, and then shorting a Feb 136-Feb 139 call spread on a subsequent rally.  Those two action together add up to: long 1 Feb 133 call; short 2 Feb 136 calls; long one Feb 139 call.  However we do it, I will signal the appropriate strategy intraday in the chat room and by way of an update to this tout.  This may seem like a lot of hard work, but I am going to work hard myself in an attempt to make back for you the cost of a one-year subscription.