Update: Spreading March Quarterly SPY Puts

by Dan February 25, 2020 11:28 am • Trade Updates

Last week on February 19th ( Pride Goeth Before the Fall) I detailed a bearish strategy/portfolio hedge in the etf that tracks the S&P 500 (SPY) for those who thought the market at then-new all-time highs was just a tad complacent given what other risk assets seemed to be screaming in silence:

If you look at the Twitter feed of the POTUS he appears to display a great deal of pride about many bad things… It reminds me a bit of what I deem to be some downright nasty things going on in risk assets and the pride that our politicians, central bankers, and market cheerleaders revel in as a result. If you subscribe to the really old saying Pride Goeth Before the Fall, then you might want to consider portfolio protection in the SPY.

Break-even on March 31st:

Profits below 328.50

Losses of up to 3.50 between 328.50 and 332 with max loss of 3.50 above 332

Rationale: this trade idea breaks-even down 3% and only risks 1% of the ETF price for nearly a month and a half.

Now with the SPY at $318 the March 31st 298 put can be sold at $3.50, It makes sense to sell those vs the long 325 puts detailed above and make a vertical spread… 27 wide put spread that is $7 in the money with more than a month to expiration where you can make up to $27 between 325 and 298 with max gain of $27 below $298 on March 31st expiration.

Action: SPY ($318.50) Sell to open 1 March 31st 298 put at $3.50
New Position: Long SPY 325 -298 put spread for no cost.


To my eye, before this correction is all said and done we will test the late Oct breakout level in the SPY which is also the ETF’s 200-day moving average (yellow line), maybe we get a pause at the 100-day (green line) but the break below the uptrend from its October lows is a significant technical break and likely overshoots to the downside…