New Trade $SPY: Cliff Outcomes Will Be Clear As Mud For The Next Couple Weeks

by Dan November 29, 2012 10:17 am • Commentary

After the nearly 6% rally of the last 9 trading days , the SPX is now down less than 4% from the 52 week highs made in Sept.  While the investment community appears squarely focused on the potential outcomes of the ongoing “fiscal cliff” debate, the last 2 consecutive quarters of disappointing corporate earnings suggest a whole host of challenges facing a continuation of the SPX’s near 13% ytd gains,aside from our fiscal policy.  

Sentiment shifts have been plentiful in the last couple months, and our sense is that playing the ranges makes sense for the next few weeks. I want to make a short term bearish bet that we get another such sentiment shift back to the recent lows near 1350 as the outcome to the “Cliff” increasingly becomes clear as mud, so to speak.  The following trade could be viewed as an outright bearish bet, or one to be used as protection against other longs during what could be a volatile couple weeks.

Trade: SPY ($142) Bought the Dec 14th 141/136 Put Spread for .95

-Bought 1 SPY Dec14th 141 Put for 1.25

-Sold 1 Dec14th 136 Put at .30

Break-Even On Dec14th Expiration:

-Profits btwn 140.05 and 136, make up to 4.05, max gain of 4.05 136 or below.

-Losses up to .95 btwn 141 and 140.05 with max loss of .95 above 141.