December quarterly options expire at the end of the trading day tomorrow. The major indexes have done a slow sideways crawl all week. The last trading day of the year will probably be another low volume day with prices remaining range-bound. If tomorrow is more of the same we will end the year on high note with gains for the month.
SPY Position Update
SPY closed $125.72 on Thursday â€“ the December position is approx. $850 in the black
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 ABOVE its 50-day simple moving average (see SPY chart)
SPY is also ABOVE its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) is extremely bullish (See SPY chart)
Moving Average Convergence/Divergence (MACD) is turning bearish (See SPY chart)
The December 5th Couch Potato published a December Quarterly expiration month call spread
This spread is approx. $350 in the black (see tables below)
$126 strike price short call delta is .3608 (64% probability this position will be profitable)
SPY Bull Put Spread
The November 28th Couch Potato published a December expiration month put spread
On December 5th the Couch Potato suggested closing out the entire SPY put spread for an approx. $500 profit (see tables below)
SPY Risk Analysis
Quarterly options expire tomorrow and the plan is to exit the position prior to the market close. The obvious risk is that the SPY price could surge and cut into our gain before we have a chance to execute the closing trade.
IWM Position Update
IWM closed at $78.76 on Thursday â€“ the December position is approx. at $150 in the red
IWM is priced ABOVE its current 14-day EMA (see IWM chart down below)
IWM is trading ABOVE its 20-day Bollinger Band SMA (see IWM chart)
IWM is ABOVE its 50-day simple moving average (see IWM chart)
IWM is also priced ABOVE its 200-day simple moving average (see IWM chart)
Relative Strength Indicator (RSI) is extremely bullish (See IWM chart)
Moving Average Convergence/Divergence (MACD) is turning bearish (See IWM chart)
IWM Bear Call Spread
The November 28th Couch Potato published a December expiration month call spread
On December 14th the Couch Potato suggested closing out this spread to adjust to higher strike prices (see tables below)
The December 14th Couch Potato published the trade adjustment to roll the initial December call spread to the end of the month (December Quarterly). Also note the increase in the number of contracts â€“ this will help minimize the loss.
This spread is approx. $700 in the black (see tables below)
$79 strike price short call delta is .3567 (64% probability this position will be profitable)
IWM Risk Analysis
Similar to the SPY Risk Analysis above, we need to close out the IWM December quarterly option contracts. There is the risk of an IWM price increase cutting into our gain prior to executing the closing trade.
The rules for exiting the SPY and IWM call spreads are:
As mentioned above, quarterly options expire tomorrow and we plan on exiting the positions prior to close of business tomorrow. Even if prices remain below our short strikes during the day there is always a chance that aftermarket activity could push prices over the short strike and we would automatically get assigned.
The easiest way to stay in the SPY and IWM call spreads as long possible to let premiums erode further and limit the risk from a last minute price surge is to issue contingency orders with the broker. The contingency orders should instruct the broker to automatically buy back the option contracts on the short strikes if the price of the underlying index (SPY or IWM) reaches the short strike price â€“ most brokers will let you do this online. Unless prices plunge drastically tomorrow (highly unlikely) within the final hour of trading we should close out any open positions regardless of whether the index prices are below the short strike prices.
The December 26th Couch Potato mentioned "... We appear to be going down to the wire with our trade adjustments as prices have inched upward to our short strikes... Obviously the best case scenario for us is for prices to stall while overbought conditions are absorbed..." We need stocks to cooperate a day longer for our ideal scenario to come to fruition.
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.