I Spy a Pullback from All-Time Highs

by Dan August 18, 2020 10:24 am • MorningWord• Trade Ideas

The last time I detailed a trade idea in the S&P 500 was on February 19th, almost exactly 6 months ago when the SPY the etf that tracks the index was $338.50 (Pride Goeth Before the Fall – SPY).

After a sharp 35% peak to trough decline from the Feb highs to the March lows, the SPX has now come all the way back to its prior high. I am hard-pressed to see what catalyst could cause the index to breakout and frankly see the potential for a double-top rejection and a break below the uptrend from the March lows and quick move back to $320:


So what’s the trade? Short-dated options are cheap…

Bearish Trade Idea: SPY ($337.50) Buy Aug 28th (next Friday) 338 put for $3.50

Break-even on Aug 28th expiration:

Profits below 334.50

Losses of up to 3.50 between 334.50 and 338 with max loss above 338

Rationale: this trade idea risks 1% of the stock price, breaks even down 1%, and allows for 8.5% trading days to play out.