In my opinion it the S&P 500 is due for a little upside action. Once again I use one of my favorite option strategies, the iron condor. When you sell an iron condor, you are selling a put spread and a call spread at the same time. There are more than a few ways to trade the S&P 500, but my favorite way is to trade the SPDR S&P 500 ETF which trades on the New York Stock Exchange under the symbol SPY.
Often when someone sells an iron condor, they are direction neutral, and will place the short strikes an equal distance from the current underlying price. Since I have a bullish opinion on SPY, I decided to pull my put side up a little closer to the current stock price. This increases my premium, but also increases my risk to the downside.
I sold the 272 / 277 put spread and the 290 /295 call spread for January 18th, 2019 expiration, which is 49 days away. I collected $262 as my premium. This iron condor is skewed to the upside, I am looking for a little of a bounce here. Below you can see a screen shot from my tastyworks account. If you are interested in learning about how to trade stock options, I recommend you check them out. In my opinion, they are the best brokerage for stock options.
Best case scenario would be for SPY to stay above 277, and below 290. If it does, I would get to keep all of my premium. But honestly, I plan to buy this iron condor back, for half of what I sold it for.
Here is another way to look at this trade. You can see that I sold the 277 puts and the 290 calls in red, and bought the 272 puts and the 295 calls which are in green.
Another thing that you can see from the picture above is my Max Profit is 262, which is what I collected when I sold this iron condor position. My Max Loss is 238, which calculated by the width of my strikes, less any premium collected. I prefer to use limited risk stock options strategies over unlimited risk stock options strategies.
SPY ETF Technical Analysis
I always like to use stock chart technical analysis before I open a position, and below are some of my favorite tools. Some traders rely solely on technical, but I am not one of them. Before I enter into a trade I make sure to look for any news and information from FINVIZ, just to see if there are any upcoming earnings reports, or dividends. FINVIZ is the one stop shop for all the current news about any stock.
The Bollinger Bands show that SPY has bounced off the lower band and is crossing the 20-day moving average to the upside. This is considered a bullish sign, and I think the sellers are getting tired anyway.
The RSI is at 53.88. This signifies neither overbought nor oversold condition. This is one of the reasons that I decided to put on an iron condor, instead of just selling puts.
The MACD is a confirmed buy signal. Usually the MACD is the more stubborn of the confirmations, and is sometimes a little too late to the game.
The stochastic is a confirmed buy signal as well. Usually the stochastic jumps the gun, but with the MACD and the Stochastic both confirming a buy signal, technical traders should agree that it is time to get bullish.
I put this trade on with 49 days until expiration, because time decay for stock options is the starts to accelerate at 45 days. I could have sold the closer to expiration December iron condor, but I usually only sell that close when I have a strong directional opinion, and I will only sell one side, not an iron condor. With 49 days, I have time to manage this call if it goes against me.
I welcome all feedback, good, bad, or somewhere in between. If you have any questions, feel free to comment below.
Also, I am not trying to say you should make this trade, and I am not trying to give you financial advice. I am just trying to educate and discuss stock options.