Today's downward price gap presents an opportunity to open a July
expiration month SPY bull put spread AND exit the June Quarterly
end-of-month expiration bear call spread.
SPY Position Update
SPY closed at $131.32 on Monday â€“ the June quarterly call spread is approx. $1,200 in the black
SPY closed at $131.32 on Monday (26 days to the June expiration)
SPY is priced BELOW its current 14-day EMA (see SPY chart down below)
SPY is trading at its 20-day Bollinger Band SMA (see SPY chart)
SPY is priced BELOW its 50-day simple moving average (see SPY chart)
SPY is ABOVE 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)
30 day Historical Volatility is 18.11%, Implied Volatility is 16.47% - both numbers have risen as stock prices are dropping, but are near the lower level of their 52-week range which is considered longer term bullish
Use the number of days to expiration, implied volatility number and 2 standard deviations to calculate the 80% statistical probability for the option price to close within our short strikes at expiration.
The Bull Put spread short strike price should be below defined support levels :
$127.00 calculated based on previous intraday lows and technical support levels
$125.00 equals the lower price level of our 80% statistical probability range
$127.41 is the lower Bollinger Band level â€“ Lower solid purple line in the SPY chart above
We want the SPY put spread to generate a minimum .50 net credit on each leg AND we prefer that the short strike fit our statistical probability profile (80% chance all the options will expire worthless and we get to keep most of the sold premium). The spread in tables below comply with our trading rules for initiating the July expiration month option series SPY bull put spread (based on Monday's closing prices). The suggestion is to submit an order to purchase/sell the option strikes prices below. Please confirm the correct option symbols with your broker.
Premium Credit $.50
Total Option Premium Received $1,000 (Excludes commissions and fees)
Maximum Risk $9,000
Margin Requirement $10,000
20 contracts traded on each leg (number of contracts can be increased or decreased based on risk tolerance and/or funds available to trade; this will impact Total Premium Received, Maximum Risk amount, and Margin Required)
The June 6th Couch Potato published a June Quarterly end-of-month expiration SPY bear call spread
We will enter an order to simply buy back the $136 strike price call contracts (versus doing a spread order). The $141 long call has minimal value to offset the fees and commissions, plus you probably won't be able to sell it anyway (see tables below)
TLT Position Update ---------------------------------------------------------
TLT closed at $126.84 on Monday
The June 21st Couch Potato published a July expiration TLT iron condor. However, the call spread side of the trade was not immediately available as Treasury bond prices pulled back the next day. Today's drop in stock prices lifted bonds and we were able to execute the published TLT bear call spread (see tables below) Those who have not had a chance to enter the call spread should consider initiating the trade below as a GTC (Good Till Cancelled) order. A submitted GTC order will be automatically executed by your broker at the preferred credit â€“ when that price is available. Generally, we don't prefer GTC orders because they remain in the broker's ordering system until you cancel it or it is executed according to the order parameters. If you submit a GTC order and don't closely monitor the market, a sudden price change can immediately convert the order into a losing trade right off the bat. However, there appears to be limited risk with submitting GTC order for the TLT call spread.
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.