SPY

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.

We locked in some bear spreads in the QQQ yesterday at great prices. That leaves us in the unaccustomed position of rooting for a rally so that we can complete a bull spread in SPY. We took the first leg of that position on Tuesday at so-so-prices, but we may be able to reduce our risk to zero if stocks take a strong bounce from here.

I'm tracking the purchase of some Jan 134 calls yesterday in SPY -- a first step in legging on the 134-137-140 butterfly.  SPY is falling too hard for me to be comfortable, but we'll stick with the position nonetheless, since it would give us reason to root for a rally for a rare change.

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 E-Mini S&P from last week's high, but I've provided a strategy for going long 'against the box' to take advantage of an attractive downside target where a strong bounce seems likely.  There are two ways to play, but if you are unable to buy ES contracts against those you are already short, you can hedge with SPY calls as advised. The short should be maintained in any event, but please note there is a stop-loss on the prospective long.

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.