The September 5th Couch Potato Market Summary mentioned ...The trading range that developed starting early this summer is still in place and the best bet is that it should continue for a while longer. ..Eventually it will change, but right now the market appears content to fluctuate between the top and bottom of the recent trading range...
This analysis is still valid as last week was a typical post holiday slow trading period with the major indexes basically ending unchanged. Market participants appear to be in a watch and wait mode, trying to figure if the next big move will be up or down. With prices approaching near-term resistance, there are murmurs from the bulls camp suggesting stocks are headed up; the bulls are emboldened by prices ending higher seven out of the last eight trading days. Just a few weeks ago, the bears held court claiming stocks were in a downtrend as we had a series of down days as prices were at near-term support. The bottom line is that technically and fundamentally, you can argue a valid case either way, but ultimately the market will decide the winner.
SPY Position Update
SPY closed $111.48 on Friday
SPY is 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 ABOVE its 50-day simple moving average (see SPY chart)
SPY is priced just ABOVE its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) is bullish (See SPY chart)
Moving Average Convergence/Divergence (MACD) is bullish (See SPY chart)
SPY Bull Put Spread
The September 9th Couch Potato recommended an October expiration month call spread (see tables below)
Premium Credit $.77
Total Option Premium Received $1,540 (Excludes commissions and fees)
Maximum Risk $8,460
Margin Requirement $10,000
SPY Risk Analysis
We have not had an opportunity to open a put spread, therefore the only risk is prices continuing to rise and threatening our $115 strike price short call.
The rules for exiting the October expiration SPY bear call credit spread is:
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.
The September 5th Couch Potato Final Comment mentioned "...if the summer pattern continues prices should advance to near term resistance before stalling. If stocks follow up on this past weeks bullish action we should be able to open call spread(s) over the next few trading days..." Stocks continue to bounce between support and resistance of the trading range that has been in place all summer. Last month prices settled at support and we did put spreads; this month stocks are at resistance and providing an opportunity to open call spreads. It is reasonable to expect continued range-bound trading and hopefully we will be able to hedge our position with a put spread if/when prices pull back. But we will patient and look to take advantage of whatever opportunity is available, with all the market uncertainty, the last thing we want to do is force a trade.
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.