Buy when everyone else is fearful.

If we do get the drop in January everyone is expecting, we should take advantage of that drop with a long term index ETF position.



SPY - S&P-500 ETF - ETF Profile

The S&P ETF mimics the S&P-500 index on a 1:10 ratio.

Most analysts believe the market sill finish significantly higher in 2017. Some analysts expect the Dow to reach 24,000 or even 25,000 by the end of 2017. A 10% move would be 22,000 and 15% 23,000. Those targets are possible but 25,000 would be a real stretch.

Analysts are rapidly updating their 2017 S&P forecasts in light of the recent rally. These are the highest estimates on the street today.

2,300 Bank of America
2,350 Credit Suisse
2,400 JPMorgan
2,400 Barclays
2,424 Piper Jaffray
2,225 Citigroup
2,500 RBC Capital Markets

If any of those targets come true, buying some January 2018 SPY calls on a dip could be a profitable trade. Unfortunately, they are expensive.

I am going to target a drop to $216 and buy the $220 LEAP calls. I am guessing the premium will be about $9 at that time. If we get filled we will hold them all year and sell a short call against them late in the year to recover some of that premium.

With a SPY trade at $216

Buy Jan 2018 $220 call, estimated premium $9, no initial stop loss.