The S&P 500 reached its multiyear high on Friday and triggered the exit rule for our SPY February expiration short call option contracts. As evidenced in the SPY ETF 60 min. chart below, the recent high is acting as firm resistance as the S&P 500 index has gyrated up and down every day this week. The S&P 500 appears to be starting to settle into a near term trading range to relieve the extremely overbought condition generated by the aggressive bullish move that started year off.
The weekly SPY ETF chart below appears to support the analysis indicating that the S&P 500 index price might be leveling off after the hot month of January. Also, the SPY charts for all the time-frames define the risk associated with the strike prices for doing a trade adjustment. The cool thing about trading the SPY ETF is the multiple expiration days within a given month. The SPY weekly and multi-week option contracts provide a variety of alternatives when it is necessary to adjust a trade. These contracts typically don't trade with extremely high level of open interest compared to options that expire on the regular monthly expiration date, but they generate a very high volume so that liquidity is usually not a problem.
SPY Position Update ---------------------------------------------------------------
SPY closed at $151.16 on Wednesday
The January 16th Couch Potato published a February expiration SPY bear call spread
We are closing out the February 15th expiration call spread and adjusting the trade (see tables below)
As mentioned above, we are closing out the February 15th expiration call spread and rolling the position out to a February 22nd expiration iron condor
The margin requirement should be approx the same as we increase the number of contracts and reduce the distance between the short and long strikes (see tables below)
After the trade adjustment the total position should be approx. at breakeven
If prices gap down tomorrow we should be able to close out the February 15th expiration call spread at a lower price. If the call spread associated with the February 22nd expiration iron condor is not available as published we will probably hold off on that part of the trade until the price recovers. Conversely if prices rise sharply then we will probably initiate the adjusted call spread at a higher short strike with a similar risk profile as described above.
If prices gap up tomorrow the put spread may not be available as published and unless the gap is filled we will hold off on the trade. Conversely if prices drop sharply then we will probably initiate the put spread at a lower strike prices with a similar risk profile as described above.
The SPY call spread exit rule was triggered last week and we wanted the price to stabilize before adjusting the trade. February regular options expire next week and as mentioned above, we plan on rolling position to the February 22nd expiration at higher strike prices and additional contracts.
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.