Bailing Early – And Taking our Money with us! (DXY, SPY, DIA, FB)

Executive Lounge, Wall Street Elite / Monday, December 15th, 2014

We’ve been worrying aloud for the last month that the market was fixing to turn over. So instead of leaving things to chance, we played the good scout and prepared a number of trades that would profit under a bearish scenario. We cast our bait and waited.

And looky-looky – it appears the time’s now come to reel ‘em in.


Have fun.

Sure, the Dow posted its worst week in over three years, and there may be a lot more downside to come. But we don’t care. We’ve got free money here, and we’ve seen too many markets reverse too many times too quickly in our lifetimes to leave anything to chance. Remember, too, that we play options, baby-love, so our bets are leveraged. The money comes fast – when it comes – and leaves just as fast when it don’t.

Line ‘em up, Toots!


With that in mind, we start with our November 17th initiative from a letter called Insurance Trade, in which we wrote the following –

“There’s really only one thing that bugs us these days, and that’s investor sentiment. On Main Street the level of bullishness has reached levels that should make all investors uncomfortable, and unless we get a sideways slide in the market or a deep jab lower to cool things down, we could all be headed for some real trouble. The AAII bullish sentiment numbers are at their highest level in four years and second highest of the entire current bull market.”

As it turns out, our anxiety was justified.

With the S&P 500 now in the midst of a significant slide, our trade – initiated as a safety measure – has now turned a healthy profit.

Our recommendation went like this –

1. Sell the SPY November 28th 200 PUT for $0.42,
2. Sell the SPY December 31st 190 PUT for $0.78, and
3. Buy the SPY December 31st 200 PUT for $2.28, producing a total debit of $1.08 on the trade.

And what happened?

The November PUTs expired worthless, giving us the full premium. Then the index slid nicely – a full 4% from its top of just over a week ago – putting us in the money.

The December 200 PUT is now worth $3.61 and the December 190 is going for $1.25.

Sell the 200s and buy back the 190s and you net out $2.36 on an initial outlay of just $1.08. That’s a 219% take for four weeks work.

And that sure beats heavy lifting.

By the way, it appears at the time of this writing that the market will open weaker on Monday morning, which means you’ll likely get a better fill on the trade than we’ve stated here. If so, by all means let us know!


Our next trade was from the 1st of December, a letter called Don’t Shoot the Salinger, where we continued our pout-bout with the following rhetorical flourish –

“You’ll have to forgive us, but it looks like we could be in for a little southbound surprise in the coming weeks – a break in the market that will weaken sentiment significantly even as it slices off a goodly number of percentage points from the indexes.”

We went on to extol the benefits of selling a credit spread on the Dow and using those same funds to buy a longer dated PUT on the index.

And what happened?

Take a look –


Within days of our warning (red circle) the market rolled over and should continue lower, we say, until volumes expand and RSI hits an oversold 20 level (in green).

And at the rate we’re presently declining that could happen in a matter of days.

So we’re not waiting.

We’re out.

So how’d we do?


Our original trade looked like this; we told you to –

1. Sell the DIA January 181 CALL for $1.17, and
2. Buy the DIA January 185 CALL for $0.42, for a net credit of $0.75, then
3. Use those same funds to purchase the DIA March 160 PUT for $1.45.
Total debit on the trade was $0.70.

And now?

With the Dow in full swan-dive mode, we believe the spread is safe and we’re leaving it be. We may return at a later date to close it out for cheap-cheap, but at present we’re not losing any sleep over it.

As for the long March 160 PUT, it has gained nicely and is now selling for $2.80.

And we’re taking it.

We have no problem unloading (early) and leaving the spread to wither. We’ll monitor it, to be sure, but in the meantime, a nearly 100% return on the PUT in just two weeks is A-OK by us.


We’re on Fire


Some folks were just born to trade.

And as the year winds down, we’ve got no shortage of money-making ideas to offer you.

Try this one…

We’re looking at a pairs trade today that bets on a single stock outperforming the index. It’s a company you’re all aware of, one that it has a predominantly local base of earnings but is also growing those earnings at such a rapid clip overseas that movements in the buck just don’t bother it at all.

That company is the poster child of the current bull market, friend of big government and spy agencies the world over, a time-waster extraordinaire and one hell of an investment. It’s Facebook (NASDAQ:FB), friends, and we plan to ride it to a big gain in the weeks ahead.

Not them again!


Yes, Rudy. Them.

Take a look at Facebook’s performance against the Dow over the last six months, and remember, that this has come at a time of an especially muscular dollar.

Facebook’s shares are cruising above all their moving averages and RSI and MACD are both bullish at a while the Dow has taken a beating!


Now look at Facebook’s performance against the Dow since the latter topped out (the Dow’s worst week since September 2011), and you’ll see why we like this pairing –

If Facebook hasn’t fallen thus far, friends – she ain’t gonna.

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Wall Street Elite recommends you consider 1) closing out your SPY PUTs as outlined above, 2) selling your DIA 160 PUT as outlined above, and 3) buying the DIA March 156 PUT for $2.49 and selling the FB March PUT for $2.52, for a total credit of $0.03 on the trade.



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Wall Street Elite recommends you consider 1) closing out your SPY PUTs as outlined above, 2) selling your DIA 160 PUT as outlined above, and 3) buying the DIA March 156 PUT for $2.49 and selling the FB March PUT for $2.52, for a total credit of $0.03 on the trade.

You profit on FB’s continuing outperformance over the Dow.

With kind regards,

Hugh L. O’Haynew, Senior Analyst, Normandy Research

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