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Matthew Whiz Buckley
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Matthew Buckley is the founder and CEO of Top Gun Options LLC and a Managing Partner at Wealth Creation Investing LLC. Matt was formerly the Managing Director of Strategy for PEAK6 Investments, L.P., one of the largest volatility arbitrage options trading firms in the country. He was the founder... More
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Top Gun Options
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Top Gun Options Intel Brief
  • Top Gun Options Sees Market Pullback Or Status Quo For Next Week 0 comments
    Feb 12, 2012 11:13 PM | about stocks: VXX, SPY, VIXM, VIXX, VIXY

    Strategic Mindset: The Top Gun Options Trading Team is Bearish on the Market - austerity in Greece and a 5 week run up in the market points to a pause or pullback in the market.

    Target: SPY Trading @ $134.11

    Commit Criteria: (NYSEARCA:SPY) The S&P 500 Index ETF has had a very long run up over the last three months, putting us at the highest point we have seen in some time. We have the increased focus on Greece that is causing people to reconsider the risks in the market. This combination of factors is likely to cause a short term correction in the markets. We are taking advantage of this situation by opening a Bear Call Spread on SPY. In addition to the expectation of a market drop we have the short Feb 131 Calls with an IV of 20.5% and the protective long Feb 134 Calls with an IV of 16.4%. This differential gives us a small additional edge in our trade.

    We should see a profit as long as the SPY goes down between now and the close next Friday.

    This trade has risks that it could fail completely so we are controlling our risk exposure by taking this as a small trade. The Max loss on this trade is $2,250 with a Max profit of $6750. There is a significant chance this trade may fail, but if it wins the reward is very large.

    Tactic: Opening 30 SPY Feb 2012 Long 134 Strike Call/Short 131 Strike Call in our virtual trading account.

    Bear Call Spread @ $2.25 Credit

    Tactical employment:

    · Buying to Open 30 SPY Feb 2012 134 Calls

    · Selling to Open 30 SPY Feb 2012 131 Calls

    · As a Bear Call Spread

    · For a net credit of $2.25 ($225 per Bear Call Spread for a total of $6750)

    · Maximum Gain: $6750

    · Maximum Loss: $.75 ($75 per Bear Call Spread for a total of $2250)

    Mid-Course Guidance: We will be watching for SPY going down. If our position reaches a 60% loss (-$1350) we would exit this trade in our Advanced Model Portfolio as a Stop Loss exit

    Profitability Target: I will wait for this Bear Call Spread to expire worthless taking the $6750 credit as profit. If I quickly reach 80% profit ($5400) on this trade I would close it early. Our expectation at Top Gun Options is that SPY will close the trading day on next Friday below $131. We had a nice trade on the VIX on Thursday that we closed half of for a $1500 gain, with the potential to make another $3100.

    Exit tactic: I will wait for this Bear Call Spread to expire worthless. If I need to adjust per above I will notify our Top Gun Options traders.

    Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

    Stocks: VXX, SPY, VIXM, VIXX, VIXY
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