UPDATED: DOES THIS MORNING’S 15 POINT RALLY OFF LOWS IN THE S&P MAKE YOU ILL? – Consider buying weekly SPY put spreads to take advantage of what could be a rocky week.

by Dan February 22, 2011 11:00 am • Commentary

Market continues its resilience to bad news, at one point overnight the S&P 500 futures were down 20 only to narrow that decline to 5 handles by 11am…..I put this trade on as i think we will make new lows this week as the news in the Middle East gets worse and investors digest disappointing housing data and poor sales at WMT.

BUY the Feb 132/131 Put spread for .15
-Buy 1 Feb weekly 132 Put for .45 and
-Sell 1 Feb weekly 131 Put at .30

Break_evens this Friday on weekly expiration:
Upside: 132 or higher you lose the .15 premium that you paid.
Downside: btw 132 and 131 you can make up to .85
-Below 131 you make .85

UPDATED: Feb 23, 1:20pm: with the S&P down almost 4% from friday’s close and multi-year highs i am taking off half of this trade as i would expect a little consolidation day tomorrow or not down +1%.  I am still bearish and looking for this market to make a sharper scarier sell-off but these Feb weekly options will get blasted if market pauses till friday…..considering rolling these out into some march spreads.  I am long SPY mar 132/128 put spread that i detailed on Options Action Feb 11 (3.45 into the video below) and on this blog Feb 14.