Trade Description
Buy one August Mini S&P 1270 put and buy one August Mini S&P 1300 call while simultaneously selling an August Mini S&P 1280 call with the market trading between 1280-1285 for an approximate cost of $0 (free trade).  Since you must enter each option individually, thus creating entry exposure, it is recommended that you have your broker execute the trade.  Initial margin is approximately $600 and max risk and max margin is $1,000.  Options expire on August 18th.

Explanation
A big surge in stocks last week came on the heels of strong earnings.  The market is approaching critical resistance at 1290 and 1305 and has the Middle East, Fed Speak, the employment report, and a heat wave to worry about.  This looks like a profit taking week and the start to a selloff down to 1250 or lower.

Profit Scenarios
Max profit is nearly unlimited and occurs at expiration with the market below 1270.  Profit is $50 per point below 1270 (assuming a $0 cost entry).  It is recommended that you exit the 1270 put using a scale out money management approach (assuming you are in multiple spreads) with 1/3 of your position qty. exits at 17.00, 28.00 and 37.00 respectively.

Risk Scenarios
Max risk is $1,000 (assuming a free trade or $0 cost entry) at expiration with the market trading above 1300.  Loss is reduced by $50 per point below 1300 to 1280 (breakeven on the trade).  It is recommended that you cover the 1280 call for $150 or less to reduce risk.

James Mound is the head analyst for www.MoundReport.com, and author of the commodity book 7 Secrets. For a free email subscription to James Mound's Weekend Commodities Review and Trade of the Month, click here.

Disclaimer
There is risk of loss in all commodities trading.  Commissions and fees vary per individual and therefore are not included in profit, cost and risk scenarios.  Please consult a licensed broker before you trade for the first time.  Losses can exceed your account size and/or margin requirements.  Commodities trading can be extremely risky and is not for everyone.  Some option strategies have unlimited risk.  Educate yourself on the risks and rewards of such investing prior to trading.  James Mound Trading Group, or anyone associated with JMTG or moundreport.com, do not guarantee profits or pre-determined loss points, and are not held monetarily responsible for the trading losses of others (clients or otherwise).  Past results are by no means indicative of potential future returns.