Original Trade
6/4: SPY – Bought SPY at $275.01. Setup: Bullish consolidation at the high end of a Bullish Wide Range Bar (+WRB), followed by a Bullish Breakdown Failure (+BDF) reversal.
6/13: Trade Update
The broader markets are getting overbought and some of our market internals (i.e., sentiment indicators) are suggesting a short-term top and bullish retracement.
As such, we recommend that if SPY trades under $277.80, then to sell the Jul (7/20 expiration, which is 37 days to expiration (DTE)) $282 strike call options (closed at $1.24/share). Also move Stop Loss to $274.17.
This is what we refer to as “legging into a covered call.” We do this after momentum slows to increase our total returns and lower our cost basis by the premium received.
Here is a more detailed description of the strategy:
Covered Call (CC). Defined as Long Stock + Short Call (1 contract for every 100 shares). Premium received lowers cost basis because selling Extrinsic Value (time decay). Done to take in money (Premium) which increases probability of profit. For further discussion on the strategy, please see our video at https://mastertrader.com/option-strategies-series-definitions/
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Greg Capra
Managing Director of Master Trader
Trading the Pristine Method — Origin and End
Dan Gibby
Chief Options Strategist
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