We have a quick flip in SPY to tell you about. There’s no denying the market is strong and the path of least resistance is to the upside. However, that doesn’t mean there is no opportunity to fade resistance.
That’s exactly what we decided to do when SPY popped back up to 142 resistance on August 16th. Given our short term bearish outlook coupled with the low volatility environment, we decided to buy an around the money put spread rather than sell an out of the money call spread.
We bought the SPY Sep 141/142 Put Spread @ 0.43 debit, meaning we were risking $43 per spread to make $57 per spread if we held to expiration. We had no intention of holding to expiration, just wanted a quick return on risk of 20% or better.
Here’s a look at the spread:
We got the quick sell off we were looking for a few trading days later on August 23rd. Without hesitation, we sold the spread @ 0.55 for a gain of 0.12, resulting in +27.91% return on risk. Mission Accomplished!
Here’s a look at entry (blue oval) and exit (orange oval) on the SPY chart.
As noted in our “Most Recent 15 Trades” post earlier today, we are recapping some of our recent trades for educational purposes. Let’s talk about the SPY Iron Condor we exited on Wednesday.
Reason for entry: There had been a very nice range in SPY between 110 & 122.50. Here’s a visual…
Once SPY broke above resistance, it quickly moved to 130 then began showing signs of range bound action in a tighter range. We noticed this range and, given the high implied volatility, saw an opportunity to sell a wide Iron Condor based on the new found range.
What was the trade: We sold to open the SPY Dec 118/120/130/132 Iron Condor on November 7th @ a fill price of 1.15 (credit).
What happened?: Things went well until the market started selling off heavily on November 17th. By November 25th, we were starting to get concerned about this spread. The good news was we had plenty of duration (time) left in the trade and there were several technical indications across the market indicating a potential short term pop. We decided to continue holding rather than cutting our losses, which proved to be a good decision.
End result: The market rallied, taking SPY back to the middle of our range. We saw this huge upside move as a gift, and sent an exit alert to members the morning November 30th after the +3.5% bull gap opening in the S&P 500. We covered the spread 0.68 for a gain of $47 per spread, or +55.29% return on risk! A beautiful trade!
Can a brotha get a few more visuals??
Here’s a visual of the tightened range we based entry on. Purple oval indicates entry, green oval indicates exit, and the small blue ovals indicates the break even price points on the spread.
Here’s a shot of the chart below zoomed in to a 30 day chart, gives a better perspective of entry & exit.
Last but not least, here’s the analysis video that members were provided with along with the detailed written trade alert!
TickerTank Premier Members have another winner on the books. We just sent an exit alert for a SPY bull put spread we entered Monday afternoon.
Late Monday, we saw S&P Future trading on 1100 consolidation support. We saw this as a great risk/reward opportunity to put on a bull spread in SPY with a little cushion just in case.
A SPY Oct 108/110 Bull Put Spread trade alert was sent to members. The trade filled @ 0.81 at 3:45pm ET.
A few minutes after our entry, S&P Futures broke and closed below 1100 support. The next morning the market gapped down slightly and continued to weaken. We must admit this made us quite nervous, but then the end of day super rally happened and set us back at ease.
After a slight continuation to the upside today, we decided to book profits in an effort to put another winner on the books and raise capital.
In the image above, the blue oval indicates entry and the yellow oval indicates exit. Entry was 0.81, exit was 0.56 for a total gain of 0.25 or $25 per spread. This transaltes to a +21.01% return on risk, beautiful!
After placing a technical bottom, the major indices have bounced quite nicely over the past few days. Will the buy side interest last, or is this just a breather in a bear market? That’s tough to say, but watching the Fibonacci Retracement levels is a definitely a good idea.
Let’s take a look at the primary ETF’s for the four major US indices to ensure we have a firm grasp on these price points. As you will see, most are trading at or slightly above their 38.2% Fibonacci Retracement levels which may result in some sell side pressure. If they do not meet selling here, the 50% levels will be the next major resistance level. Following that there may be some resistance at 61.8%, but generally if it surpasses the 61.8% level it will retrace 80% or more of the initial move.
38.2% @ 119.50 - comparable to 1185 in /ES
50% @ 122.50 - comparable to 1215 in /ES
61.8% @ 125.35 - comparable to 1250 in /ES (major psychological barrier)
38.2% @ 53.80 - comparable to 2150 in /NQ
50% @ 55.00 - comparable to 2205 in /NQ
61.8% @ 56.15 - comparable to 2260 in /NQ
38.2% @ 114.14 - comparable to 11300 in /YM
50% @ 116.65 - comparable to 11575 in /YM
61.8% @ 119.20 - comparable to 11850 in /YM
38.2% @ 71.60 - comparable to 772 in /TF
50% @ 74.00 - comparable to 745 in /TF
61.8% @ 76.45 - comparable to 2260 in /TF
We talked about the measured moves in the major indices futures charts yesterday. Let’s review this once again.
S&P 500 Futures completed the Head & Shoulders measured move of 1125 yesterday:
Dow 30 Futures completed their measured move of 10,750 based on the Double Top yesterday:
After the measured moves completed, there was some continued downside pressure that carried late into the evening last night. The downside pressure eventually subsided and the market was moderately strong into this afternoon’s FOMC Announcement. The initial reaction to the announcement was bearish, but the market recovered and put in a massive rally into the close.
Does this mark the bottom for sure?
Well, in financial markets you can never be 100% sure. We feel confident that the bottom is in, but there is one thing that worries us a bit…
The measured move in of 1915 based on the Bearish Consolidation Breakout in Nasdaq Futures was never reached:
It got extremely close with today’s low of 1972.25, but it didn’t manage to go all the way. Given the technical manner in which this market has been acting, there’s a chance that this will fade after a retracement to consolidation support turned resistance in the 2175-2225 range.
If that does manage to happen, a short entry in that range (white oval) could be very lucrative in the even the Nasdaq does reach it’s 1915 target (green oval):
Keeping in mind the S&P 500 is the bench mark indice, it is not likely that the failure for the Nasdaq to hit its measured move will cause another sell of in the market. That said, it’s worth noting and keeping a close eye on.