The broader indices have turned positive, reversing in amazement last night’s bearish reaction to the U.S. strikes in Syria and morning weakness. Nevertheless, we are providing a bearish option trade in the SPY since it will only trigger if the markets later turn bearish, with the pattern then supporting lower prices.
Below is daily chart of SPDR S&P 500 ETF (SPY), $235.30.
Trade: Under $234.45, we recommend selling 10 Apr $238/240.5 bear call spread ((14 Days to Expiration (DTE)) at mid-point (currently $.45/share).
Technical Setup: Bearish in the lower 50% of failed breakout bar which closed with a bearish range expansion and topping tail bar.
Option Strategy: Bear Call Credit Spread (BCS). Defined risk strategy where you make maximum profit (net credit received) if the stock closes below the short call strike at expiration. We sell call strike price above resistance where the pattern suggests that the stock will not close above at expiry, and simultaneously purchase higher strike call than the one sold as a hedge and to reduce margin.
The return on investment (ROI) is the credit received divided by the maximum loss (i.e., width of strike prices less premium received). The break-even is the short strike price plus credit received (i.e., also your cost basis if assigned the stock).
Considered a mildly bearish strategy since we are not buying puts (or shorting stock) and just calling a short-term top in the pattern. Trade has positive theta (meaning you make money on time decay) making it a high probability trade since we time entry with the technical pattern.
Max Gain: Credit received. Cost basis if assigned is lower strike plus Credit.
Stop Loss: $237.62.
Adjustments and Comments on Open Advisory Letter Trades (Note: We have started posting our trade updates in a separate Report in the Member’s Area. Please see that document for a current reflection on all Open and Closed Trades). However, here are our current opens and current adjustments.
VLO – Sold 10 Apr $65/60 bull put spread for $.44/share. Stopped at $.84/share for $400 loss.
NVDA – Sold 10 Apr $111/117 bear call spread for $.50/share. Mid-point to close is $27/share. Bid $.05/share to close and move stop loss to $103.22.
ODP – Bought 1000 shares of stock at $4.85/share. With market uncertainty, let’s close this break even.
XBI – Sold 10 May $71/75 bear call spread for $.59/share. Stop Loss: $70.62.
XLK – Sold 10 May $54/57 bear call spread at $.43/share. Stop Loss: $53.82.
AMD – Sold 10 May $16/18 bear call spread for $.23/share. Note: Don’t have earnings date. Stop Loss: $14.92.
Other Trade Ideas:
CMG, CMCSA, EWP, WYNN, BYD, RH, LL, DRI and VIAB – Breakout daily, weekly, and monthly charts, will watch for Bullish Directional Trades on daily pull back, will advise.
Happy trading! If you have any questions or comments, please e-mail Greg Capra at Greg@mastertrader.com or Dan Gibby at Dan@mastertrader.com
All the best,
Greg Capra
Managing Director and Pristine Founder
Dan Gibby
Chief Options Strategist
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Twitter: @GregCapra
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