3/22/2020 Plan: Volatility is still very high, but is just starting to come down from the peak. While predictions are always dangerous, we have likely already seen the high in VIX for this downturn. Just a little over a month ago, SPY topped out at 339.08. That seems like a lot longer ago as we have steadily declined since then to 228.8 as of 3/20. This week’s trade takes advantage of the still high implied volatility to get long the market at effectively 170 almost half of where we were trading a few weeks ago.
3/22/2020 Plan (continued): We buy a 1×2 in SPY for a nice credit. If you don’t have portfolio margin, don’t want to take delivery, or simply want to better define your risk, buy an additional put.
- We buy 1 17 APR 200 put in SPY and sell 2 185 puts for a credit of 1.41
- Management of this trade is a bit more complicated. If the market bottoms and/or goes up, we simply ride it out and collect the 1.41. If the market slowly drifts down, we will be able to take the position off for even more money as the 200 increases in value and the 185s decay. If we want to go long the market, we can ride it out to expiration and take delivery of the shares for an equivalent 170 (really 168.59).
- Prices are as of market close 3/20/2020, actual fill and strikes may differ depending on Monday open, post will be updated accordingly
- All trades are for educational purposes and do not constitute advice
3/23/2020 Entry: The 1×2 was put on for a credit of 1.07, less than over the weekend, but still a decent amount of premium given we would effectively go long the market at 168.93
3/27/2020 Exit: With the market strongly up after Monday, we can take the trade off for only 0.24, profiting a nice 0.83 for a 4 day hold. There were plenty of opportunities throughout the week to take it off for an even larger profit. Note that for longer term investors, there is no issue with simply holding it longer to see if the market drops and more money can be made or 100 shares of SPY can be had for a very low price.
