Cabot Options Institute Quant Trader – Trade Alert (SPY)
SPDR S&P 500 ETF (SPY)
I want to sell a bear call spread in SPY going out to the December 15, 2023, expiration cycle. As mentioned in our alert Friday and issue today, I want to take advantage of the current short-term oversold readings and two unclosed upside gaps from last week.
The current price of SPY is 435.36.
IV: 16.3%
IV Rank: 24.2
Expected Move (Range): The expected move (range) for the November 17, 2023, expiration cycle is from 419 to 451.
Call Side:
The Trade
Simultaneously:
Sell to Open SPY December 15, 2023, 456 call strike
Buy to Open SPY December 15, 2023, 461 call strike for a total of $0.58. (As always, the price of the spread will vary, so please adjust accordingly.)
Delta of spread: -0.05
Probability of Profit: 86.49%
Probability of Touch: 25.95%
Total net credit: $0.58
Total risk per spread: $4.42
Max return: 13.1%
Risk Management
Since we know how much we stand to make and lose prior to order entry, we can precisely define our position size on every trade we place. Position size is the most important factor when managing risk, so keeping each trade at a reasonable level allows not only the Law of Large Numbers to work in your favor … it also allows you to sleep well at night.
I tend to set a stop-loss that sits 1 to 2 times my original credit. Since I’m selling the 456/461 bear call for roughly $0.58, if my bear call reaches approximately $1.16 to $1.74, I will exit the trade. As always, I will keep you updated on the status of the position as it progresses and send any necessary updates.
As always, if you have any questions, please feel free to email me at andy@cabotwealth.com.
