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SPDR S&P 500 ETF (SPY) Trade Alert

By Jeff Brown on January 31, 2017

Action to Take:

Sell to Open the SPY March 17, 2017 $219 put

Buy to Open the SPY March 17, 2017 $214 put

For a net credit of $0.62 or more

Profit Potential:

Max capital at risk per spread: $500 – $62 = $438

Return on capital at risk:  $62/($500 – $62) = 14.2%

Days to expiration: 44

Trade Thesis:

There are times when simply trading the major indices presents some of the most attractive credit spread opportunities. That’s the case today with the S&P 500 Index, which has shown incredible strength over the last 12 months. It is currently up 24%.

Aside from the late-October/early-November “pre-election jitters,” the S&P 500 has one of the best charts. And the index pulled back yesterday and today, presenting an opportunity for us to put on a bull put spread.

As you can see in the one-year chart above, the index is just about resting on its one-year upward trend line (green) and I believe in the short term it will continue to head higher.

In order to trade the S&P 500, we are going to use the SPDR S&P 500 ETF (SPY). As you’ll see below, the charts are nearly identical.

This pullback toward the green trend line gives us an opening to sell the $219 strike option at a solid premium. At $219, we are about $5 below the 50-day moving average (blue line), giving us a cushion between now and options expiration.

Selling the $219/$214 bull put spread provides a 14.2% return on capital at risk in just 44 days with a high probability of the trade expiring worthless.

Action to Take:

Sell to Open the SPY March 17, 2017 $219 put

Buy to Open the SPY March 17, 2017 $214 put

For a net credit of $0.62 or more

Profit Potential:

Max capital at risk per spread: $500 – $62 = $438

Return on capital at risk: $62/($500 – $62) = 14.2%

Days to expiration: 44

Regards,

Jeff Brown
Editor, Four Point Trader

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