Yesterday's big gain was wiped out as stocks reversed course back to near-term support as traders reacted to the Greek debt crisis and sour economic news. Stocks are clearly oversold, but with June expiration and quadruple witching day on Friday all bets are off as to when prices will recover. As illustrated below, the first order of business for us is to adjust the SPY put spread to minimize the loss.
SPY Position Update
SPY closed at $127.02 on Wednesday - the June position is approx. $3,200 in the red
SPY is priced BELOW its current 14-day EMA (see SPY chart down below)
SPY is trading BELOW its 20-day Bollinger Band SMA (see SPY chart down below)
SPY is BELOW its 50-day simple moving average (see SPY chart)
SPY is still ABOVE its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) is bearish (See SPY chart)
Moving Average Convergence/Divergence (MACD) is bearish (See SPY chart)
The May 16th Couch Potato published a June expiration month bull put spread
This put spread is approx. $3,200 in the red (see tables below)
$129 strike price short put delta is -.7049 (30% probability this position will be profitable)
We are rolling the put spread out to the end-of-June quarterly expiration at lower strike prices AND increasing the number of contracts
After the trade adjustment the total position should be approx. $500 in the black
As mentioned above yesterday's bounce was erased and the SPY plunged below the $129 short put strike price and triggered the exit rule for getting out of the trade. If prices have NOT recovered in the first hour of trading on Thursday then we cut our losses and issue an order to execute the CLOSING TRADE shown above; AFTER we get confirmation that the first order closed, then we can issue the order in TRADE ADJUSTMENT table above. If prices show signs of a recovery when the market opens tomorrow, then we will try waiting to initiate the trade when the price is near an intraday resistance level â€“ obviously the idea is to get a better closing price. With June quarterly trade adjustment we are betting that the 200-day MA will provide firm support over the next few weeks and the oversold condition will resolve itself.
In the past we discussed how quarterly the option series can be a useful option to adjust a trade in the current month and avoid transferring the risk out to future months.
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.