+64% in SPY Put Spread – Now What?

Good evening traders.

While the S&P’s are pausing here today, the larger question is:

‘How much longer can the headwinds be ignored?’

A little clarification though. There are indeed both technical and fundamental headwinds. But there remain technical and fundamental drivers too.

At this point in my career I learned that fighting the trend is never a good thing, but having a generous does of scepticism will reduce the odds of a blow-up quite a bit.

As of now, I can think of several data points I have come across recently that suggest near-term caution:

  • The US is nearly at a negative yield environment. Inflation and 10-year Treasury rates are both at 2.5% – not a good metric for equity returns going forward.
  • The S&P’s are 2 standard deviations above 10, 50 and 200-day moving averages. Historically 1 week and 1-month returns forward on average were negative
  • The wave count puts us currently in a Wave 4 correction lower and suggests we could see prices test 2326-2309

However, with…

  • A very accomodative Fed
  • Low volatility
  • The indexation of the money management industry
  • Lumber prices rising

…the trend remains up, albeit a fragile one.

I closed out the SPY Put Spread yesterday and that was a good call – a gain of +64%

So while I did not get my maximum gain of $771 per contract (I had 10 contracts) I did manage a gain of $557 per contract and that is respectable.


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You might ask why I closed it.

Pretty basic. While it is always tempting to go for the throat, I always try to re-evaluate a trade as it unfolds.

  • Would I start a new position from these levels or add to an existing one?
  • Is it unfolding in the way I had expected?
  • Is there new information that impacts my initial thesis?

The answers in this case were: No, Yes and Yes.

Fast forward to where we are now, I think we may well have another opportunity to get long SPY via the ETF or yet another option strategy but I will not know for certain for a few days.

S&P 500

How prices unfold lower, where they find support and how they react from those levels will be key in determining our next trade.

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