Capturing 9.43% Profit in Our SPY Bear Put Spread in Two Trading Days

John Thomas

Hedge Fund Executive

Contributor's Links: Mad Hedge Fund Trader

John Thomas graduated with a bachelor’s degree in biochemistry with honors and a minor in mathematics from the University of California at Los Angeles (U.C.L.A.) in 1974. He moved to Tokyo, Japan where he was employed by a medium-sized Japanese securities house. Thomas became fluent in Japanese and was trained as a domestic Japanese research analyst and money manager. In 1977 Thomas became the Tokyo correspondent for The Economist magazine and the Financial Times of London. Thomas traveled extensively throughout Asia, interviewing premiers, presidents and prime ministers, writing on macroeconomic trends, and producing countless features about individual companies. Thomas witnessed China’s cultural revolution and was one of the first American correspondents to enter China prior to the U.S. normalization of relations. Thomas authored several books about the Japanese financial system still in use by business schools today. In 1983 Thomas joined a top US investment bank in New York with the mandate to develop an international equity business for the firm. In 1985 he moved to London, England to establish a presence in Japanese equity derivatives for the firm. In 1989 Thomas was appointed a director of one of the big three Swiss Banks with a mandate to design sophisticated hedging strategies for the bank’s considerable holdings of Japanese equity warrants and convertible bonds. With the invasion of Kuwait by Iraq, Thomas was drafted by the US Marine Corp to serve as a pilot. In 1990 Thomas became a pioneer in the nascent hedge fund industry by founding the first dedicated Japanese hedge fund. The firm managed segregated accounts for a variety of government agencies, banks, and high net worth individuals in Europe, the Middle East, and Asia. After a decade of spectacular absolute and relative performance he sold his firm in 1999 and retired to manage his personal investments in the oil and gas industry. Seeing incredible opportunities in the marketplace and yearning for the adrenaline and satisfaction offered by active management, Thomas launched a new hedge fund in 2007. In his free time Thomas is a commercial aircraft pilot, long distance hiker and mountain climber, wine collector and avid photographer.less

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Capturing 9.43% Profit in Our SPY Bear Put Spread in Two Trading Days

Date: Tuesday, August 2, 2016 12:53 PM EDT

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We managed to capture a 9.43% profit in our short position in the (SPY) in just two trading days.

Since I strapped on this position, we have plunged from a new all time high in the (SPY) to a three week low.

By taking profits here, we also get to dodge the bullet of the July nonfarm payroll report on Friday.

So basic risk control demands that I take profits on the S&P 500 SPDR’s (SPY) August, 2016 $221-$224 in-the-money vertical bear put spread, having made so much money so fast.

I’m sure I’ll get another chance to put this position back on at a future date.

In any case, at $2.90 we are harvesting 71.42% of the maximum potential profit. Taking profits here means I don’t have to wait for 13 more trading days to see if I am a hero or a goat.

Profits for hedge funds have been few and far between this year, and this one is better than a poke in the eye with a sharp stick.

To see how to exit this trade in your online platform, please look at the order ticket below, which I pulled off of optionshouse.

If you are uncertain on how to execute an options spread, please watch my training video on “How to Execute a Vertical Bear Put Debit Spread” by clicking here at http://members.madhedgefundtrader.com/ltt-executetradealerts/. You must me logged into your account to view the video.

The best execution can be had by placing your bid for the entire spread in the middle market and waiting for the market to come to you. The difference between the bid and the offer on these deep in-the-money spread trades can be enormous.

Don’t execute the legs individually or you will end up losing much of your profit. Spread pricing can be very volatile with only 9 days to expiration.

Here are the specific trades you need to execute this position:

Sell 37 August, 2016 (SPY) $224 puts at………….….……$9.00

Buy to cover short 37 August, 2016 (SPY) $221 puts at.…..$6.10
Net Cost:…………………………………………………......$2.90

Profit: $2.90 - $2.65 = $0.25

(37 X 100 X $0.25) = $925 or 9.43% profit in 14 trading days.

The Diary of a Mad Hedge Fund Trader, published since 2008, has become the top performing trade mentoring and research service in the industry, averaging a 34.84% annual return since inception for subscribers.

It’s fundamental and technical calls on stocks, bonds, foreign currencies, energy, commodities, and real estate have been unmatched. It is published by John Thomas, a 45-year market veteran, and one of the founders of the hedge fund industry.

John’s elite team offers subscribers a daily market commentary research letter with deep background on all the trades and economic trends in play, a live biweekly strategy webinar, and Trade Alerts sent out instantaneously at market sweet spots. To learn more about our premium service, Global Trading Dispatch, please visit the Mad Hedge Fund Trader at www.madhedgefundtrader.com

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