SPY ETF Trade Setup
We are opening a January
expiration month SPY Bear Call spread
SPY closed at $124.60 on Monday (33 days to January expiration)
SPY is priced ABOVE its current 14-day EMA (see SPY chart down below)
SPY is ABOVE with its 20-day Bollinger Band SMA (see SPY chart)
SPY is trading ABOVE its 50-day simple moving average (see SPY chart)
SPY is 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 but losing momentum (See SPY chart)
30 day Historical Volatility is 13.35%, Implied Volatility is 14.05% both numbers have dropped near the bottom of their 52-week range â€“ which is considered a bullish sign
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 Bear Call short strike to exceed defined resistance levels :
$125 calculated based on previous intraday highs and technical resistance levels
$128 equals the upper price level of our 80% statistical probability range
$127 is the upper level of the Bollinger Band â€“ Upper solid purple line in the SPY chart below
We want the SPY call spread to generate a minimum .50 net credit AND we prefer that the short strikes fit our statistical probability profile (80% chance all the options will expire worthless and we get to keep most of the sold premium). The spread in tables below comply with our trading rules for initiating the January expiration option series Bear Call Spread (based on Monday's closing prices). The recommendation is to submit an order to purchase/sell the option strikes prices below. Please confirm the correct option symbols with your broker.
Premium Credit $.55
Total Option Premium Received $1,090 (Excludes commissions and fees)
Maximum Risk $8,910
Margin Requirement $10,000
20 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)
The rules for exiting the January expiration SPY bear call credit spread 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.
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.