4/30/2022 Plan:
This week we take a look at SPY (Ticker: SPY)
4/30/2022 Plan (continued):
- SPY – Buy the Jun 3rd 410/392 1×2 put spread for a 1.87 credit Note – large accounts only
- Prices are as of market close 4/29/2022, actual fill and strikes may differ depending on Monday’s open, post will be updated accordingly.
- All trades are for educational purposes and do not constitute advice
4/30/2022 Commentary:
Lots of inquiries on how to protect oneself in a down market. With the markets Very turbulent, I won’t recommend a put spread or put sale this week and instead share a “quasi” hedging strategy that I regularly used. I just took one off on Friday for a tidy profit and this trade is what I’ll put on this week. The concept is that you buy a put spread (410/392) in this example about 1 month out. In addition, you sell one additional put to pay for the spread. This, of course, obligates us to purchase SPY at $392/share.
- Buy 1 SPY June 3rd 410 put
- Sell 2 SPY June 3rd 392 puts
What is great about this trade is that we have a nice profitable window at expiration. Anywhere above 372.13 and we’ll be profitable!
The downside is if SPY really plummets, we’ll start to lose at 372.13 and have to buy the shares or close the position for a loss.
Note that you can move the strikes around to take in more/less credit or give yourself more protection to the downside. Max profit is if we end Exactly at 392 and we’ll make $1800 on the put spread plus the $187 on the initial credit for a total of $1987. Don’t expect to make exactly that much, but if you plot the P&L, you’ll see we can definitely increase our win if SPY drifts further below 410. As an example, I closed a 440/425 1×2 on Friday pulling in an additional $792 above my initial credit.
I really like having these trades on regularly – they provide -some- downside protection, a credit if the market rises, and a way to get into SPY at lower levels.
If you can’t afford 100 shares of SPY, consider buying a lower leg to cap the downside on the trade and just take the whole thing off before expiration (rather than taking shares).
Feel free to Reach out with questions on this or anything else!
5/2/2022 Entry:
Bought Jun 3 SPY 408 put, sold 2 390 puts for credit of 1.90. Buy lower put for smaller accounts to bound risk.
5/7/2022 Update:
The SPY 1×2 is working quite well and could be closed now for only 0.12 and a profit of $178. Feel free to “take the money and run” (please don’t carry scissors while doing so). Personally, I’m holding onto it as some downside protection, but for those that want to cash out, by all means do so. I’ll continue to update the trade’s progress as we haven’t traded too many of these as recommendations and it will provide some education.
5/14/2022 Update:
The SPY 1×2 can be closed for a credit of 1.18 at this point, which would be a profit of $308. You can take it off here and offset some of the TTWO loss or hold longer. I’m doing the latter, personally.
5/22/2022 Update:
The SPY 1×2 can now be closed for a credit of $326, which would be a profit of $516! If you have more than one open, I would suggest closing some to lock in some of those profits. SPY is right at the short strike, which is good for our position, but I don’t expect SPY to stay there.
5/27/2022 Close:
Closed the SPY 1×2 for a credit of $251. Combined with the $190 credit we received for putting the trade on, that’s a win of $441! Depending on your timing during the week, you could have taken it off for even more – but can’t complain about a solid win.
