SPY Bear Call Spread
Comments from the June 12th Couch Potato "... after the June Quarterly options expire we hope to sell July calls against these same long calls that we have in play. At the very least we have very little to lose and a nice potential gain if this play works out. The 200-day SMA appears to be the demarcation point and if prices approach this level we will evaluate selling calls again..." The recent stock surge is presenting a low risk opportunity for us to sell the July calls.

SPY ETF Trade Setup
We are selling July expiration short calls - hedged by our $120 long calls
SPY closed at $111.96 on Wednesday (31 days until July options expire)
SPY is priced ABOVE its current 14-day EMA (see SPY chart down below)
SPY is trading ABOVE its 20-day Bollinger Band SMA (see SPY chart)
SPY is still BELOW its 50-day simple moving average (see SPY chart)
SPY is trading ABOVE its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) is neutral (See SPY chart)
Moving Average Convergence/Divergence (MACD) is bearish but starting to turn up (See SPY chart)

30 day Historical Volatility is 31.76%, Implied Volatility is 22.72% - both numbers are near the upper level of their 52-week range
Upper range standard deviation is .84162, the lower range is -.84162
Use the number of days to expiration, volatility number and the standard deviation to calculate the 80% statistical probability for the option price to close within our short strikes at expiration.

We want the SPY Short strike to exceed defined resistance levels :
$112 calculated based on previous intraday highs and technical resistance levels
$115 equals the upper price level of our 80% statistical probability range
$113 is the upper level of the Bollinger Band – Upper solid purple line in the SPY chart below

We want the SPY short call to generate a minimum .50 credit AND fit our statistical probability profile (80% chance the short strike will expire worthless and we get to keep most of the sold premium).

PLEASE NOTE the June 14th Couch Potato recommended selling calls (June Quarterlies) against half of our long call contracts – the trade below (July expiration) will offset the other half of the long calls. Please confirm the correct option symbols with your broker.

10 contracts traded (number of contracts can be increased or decreased based on risk tolerance and/or funds available to trade; this will impact Total Premium Received, Maximum Risk amount, and Margin Required)

DIA ETF Trade Setup
We are selling July expiration short calls - hedged by our $112 long calls
DIA closed at $104.29 on Wednesday (31 days until July options expire)
DIA is priced ABOVE its current 14-day EMA (see DIA chart down below)
DIA is ABOVE its 20-day Bollinger Band SMA (see DIA chart)
DIA is BELOW its 50-day simple moving average (see DIA chart)
DIA is trading ABOVE its 200-day simple moving average (see DIA chart)
Relative Strength Indicator (RSI) is neutral (See DIA chart)
Moving Average Convergence/Divergence (MACD) is bearish but turning up (See DIA chart)

30 day Historical Volatility is 28.77%, Implied Volatility is 19.98% - both numbers are near the upper level of their 52-week range
Upper range standard deviation is .84162, the lower range is -.84162
Use the number of days to expiration, volatility number and the standard deviation to calculate the 80% statistical probability for the option price to close within our short strikes at expiration.

We want the DIA Short strike to exceed defined resistance levels :
$105 calculated based on previous intraday highs and technical resistance levels
$106 equals the upper price level of our 80% statistical probability range
$105 is the upper level of the Bollinger Band – Upper solid purple line in the SPY chart below

We want the DIA short call to generate a minimum .50 credit AND fit our statistical probability profile (80% chance the short strike will expire worthless and we get to keep most of the sold premium).

PLEASE NOTE the June 14th Couch Potato recommended selling calls (June Quarterlies) against half of our long call contracts – the trade below (July expiration) will offset the other half of the long calls. Please confirm the correct option symbols with your broker.

10 contracts traded (number of contracts can be increased or decreased based on risk tolerance and/or funds available to trade; this will impact Total Premium Received, Maximum Risk amount, and Margin Required)

Exit Plan
The rules for exiting the SPY and DIA credit spreads are:

Anytime the market maker is willing to accept a limit price of less than .11 on the short strike, buy back all the short contracts and sell the long positions on the same spread. However, if it is a few days prior to the expiration date, we may be able to hold out for a .05 bid.

If the short strike is penetrated (closing price above the short call) AND after market close, if the delta associated with the short strike is .65 or higher, we will look to close out this spread (buy the short contracts, sell the long) and roll it out to another short strike price.

Gregory Clay

Couch Potato Trader Disclaimer
All results reported in this section are hypothetical. While the numbers represented here may have been achieved or beaten by our readers, we make no representation that any individual investor achieved these exact results. The tracking for the plays listed in this section uses closing prices for the day the newsletter is published and it is not meant to imply that any reader actually received those prices (though many often do) or participated in these recommendations (even though many do). The portfolio represented here is hypothetical and for investment education purposes only. It is only an illustration of what type of gains a knowledgeable trader might receive utilizing these strategies. If you don't get close to these results, guess what. It isn't the fault of the strategies.