New Trade Setup: $DJX Put Ratio Back Spread

The model portfolio is looking to add additional short equity exposure today in a manner that reduces risk and can take advantage of expanding volatility. We will attempt to achieve this with a back ratio put spread on $DJX. Specifically, the model portfolio will:

• Buy 6 June 2013 $DJX 120 puts
• Sell 4 June 2013 $DJX 130 puts

The current midpoint price of the spread is $1.90 for the 3/2 spread.  That is 3 long puts for every 2 short puts.   The model portfolio wants to purchase 2 spreads total to get the 6 long 4 short position we want it to have.  We will offer to pay $2.30 for the spread and try to get filled.   That would be $460 cash to purchase the spread, although the margin requirements should be a little over $2,000 for the entire position.

This is a fictitious model portfolio managed to demonstrate trading techniques which may be used to trade a speculative account. The description of this hypothetical transaction is for education purposes only. Nothing related to the portfolio should be interpreted as a recommendation to buy or sell any security and the general techniques employed may not be suitable for every individual. Past performance of these techniques or this portfolio may not be representative of future results and results shown may vary from actual, live trading results subject to commissions and live market conditions including liquidity.