The December 11th Couch Potato mentioned "...The bulls and bears appear to be engaged in a tug-of-war..."However, at this point the bulls are winning the skirmishes as the bears have not been able to gain full control...note in SPY daily chart down below how it is currently priced close to its 200-day SMA which is acting like a magnet... " This analysis is still valid. Take a look at the SPY weekly Heikin-Ashi chart below and notice how the index is trading in a tight price range. Eventually, the price will move out of this range, a few weeks ago the best bet was a bullish move. But the major indexes finished lower the past few weeks as relatively positive U.S. economic data has been offset by the ongoing European debt melodrama.
The S&P 500 index is down approx. 3% for the year and would need to rise to around 1,257 to finish higher for the year. With two weeks left in the trading year we might see a Santa Claus rally to the upside as some money managers might attempt to push prices up so that the market at least ends the year flat. Trading volume is typically lighter this time of year as traders start checking out for year - end vacation. Since there will be fewer participants and less trading volume, it becomes easier for traders to push stocks higher.
SPY Position Update
SPY closed at $121.59 on Friday â€“ the December position is approx. $3,500 in the black
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)
SPY is priced BELOW its 50-day simple moving average (see SPY chart)
SPY is BELOW its 200-day simple moving average (see SPY chart)
Relative Strength Indicator (RSI) is neutral (See SPY chart)
Moving Average Convergence/Divergence (MACD) is neutral (See SPY chart)
The November 30th Couch Potato published a December expiration SPY bear call spread
On December 12th we suggested closing out the call spread for an approx. $1,200 gain (see tables below)
The November 14th Couch Potato published a December expiration SPY bull put spread
On December 16th this put spread expired with an approx. $1,400 gain (see tables below)
The December 5th Couch Potato published a December Quarterly expiration SPY bear call spread
On December 13th we suggested closing out the quarterly call spread for an approx. $900 gain (see tables below)
The December 5th Couch Potato published a December Quarterly expiration SPY bull put spread
This put spread is approx. at breakeven (see tables below)
$117 strike price short put delta is -.2067 (79% probability this position will be profitable)
The December 15th Couch Potato published a January expiration SPY bull put spread (see tables below)
SPY Risk Analysis
All of the SPY call spread contracts have been closed out; therefore the only risk is a price crash threatening our December quarterly and/or January short puts.
As with initiating the trade, the decision process for exiting our SPY bull put positions will be simple:
Anytime the market maker is willing to accept a limit price of less than .11 on one of our short strikes, 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 one of our short strikes is penetrated (closing price below our short put ) AND the delta rises to .65 we will look to close out this spread (buy the short contracts, sell the long) and roll it out to another short strike price. Unless this is option expiration week, do not panic and rush to close the trade, many times the market will reverse itself and remove the sense of urgency. If one of our short strikes has been violated and there is no price reversal, we cut our losses and live to fight another day.
As mentioned above, money managers might be tempted to push the market higher over the next few weeks so that stocks can end the year higher. At this point our Couch Potato portfolio is holding bullish put spreads; therefore a price move to the upside would help ensure these positions remain profitable. And of course, if we get a bullish price move into resistance there might be an opportunity to execute call spreads to hedge our current positions.
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.