Editor's Note:

This bearish play on the S&P 500 play will even out our portfolio and act as a hedge against our long positions.


SPDR S&P 500 Index - SPY - close: 119.74 change: +0.19 stop: 123.05

Company Description:
SPDR S&P 500 ETF (the Trust), formerly SPDR Trust, Series 1, generally corresponds to the price and yield performance of the S&P 500 Index. The S&P 500 Index consists of 500 selected stocks, all of which are listed on the exchange, the NYSE or NASDAQ, and spans over 24 separate industry groups. (source: company press release or website)

Why We Like It:
The S&P 500, along with all of the major indices, looks vulnerable here and I believe it is overdue for a pullback. The ETF appears ready to finally break its steep uptrend line from the February lows. The financials make up a large part of this index and they are right at their November 2008 highs which we anticipate will act as resistance and start the selling in SPY. SPY is also approaching its 200-week SMA and prior support from July/August 2008 which should also provide good resistance. I am suggesting May puts at current levels. Our target is on this trade is $115.50 and we have a time frame of a couple of weeks. However, if the selling picks up steam our target could be hit relatively quickly. We will use an initial stop of $123.05 but expect to lower the stop if the trade is moving our direction.

Suggested Position: Buy PUT MAY $119.00, current ask $2.00

Annotated Chart:

Entry on April xxth at $ xx.xx
Earnings Date Not Applicable
Average Daily Volume = 164 million
Listed on April 12th, 2010