DailyPlay – Opening Trade (SPY) – April 21, 2023

SPY Bearish Opening Trade Signal

View SPY Trade

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish

Details: Buy to Open 6 Contracts May 12th $411/$395 Put Vertical Spreads @ $3.50 Debit per contract.

Total Risk: This trade has a max risk of $2,100 (6 Contracts x $350) based on a hypothetical $100,000 portfolio risking 2%. We suggest using 2% of your portfolio value and divide it by $350 to select the # contracts for your portfolio.

Counter Trend Signal: This stock has traded into an area of resistance and is expected to pull back lower.

1M/6M Trends: Bullish/Bullish

Technical Score: 7/10

OptionsPlay Score: 152

Entering the Trade

Use the following details to enter the trade on your trading platform. Please note that whenever there is a multi-leg option strategy, it should be entered as a single trade. 

Please note that these prices are based on Thursday’s closing prices. Should the underlying move significantly during the pre-market hours, we will likely adjust the strikes and prices to reflect a more accurate trade entry. 

Investment Rationale

TSLA’s numbers and a non-rosy Beige Book report gave no reason for buyers to keep up their bidding on Thursday, and the SPX sold off 25 pts. to end the day at 4130 – precisely 25 pts. beneath the 4155 key resistance from the weekly cloud top that has continually rejected the advance this year.

Two quick things: 1) You should already be out of the long BSX call that expires today. 2) Yesterday the USO trade sold down to where we got in it, which I had said would be our stop-out.  So, you should now be flat it. I will watch to see if support holds because I’d lean more on the bullish side than not, and if so, we’ll put another long spread back on next week.

I realized that I didn’t need to look far for a new play today, because it was virtually obvious to me: Let’s bet bearishly on the SPY, until it and the SPX close above their respective weekly cloud tops. (That could happen today, of course, but it seems worth the small risk for a potential reward that is probably 3-4x.)

As such – and with the VIX at 17 – let’s look to buy a SPY May 12th $411/$395 put spread. It went out yesterday at just about $3.50, costing a mere 22% of the strike differential.

SPY – Weekly