DailyPlay – Opening Trade (SPY) – May 23, 2025

SPY Bearish Opening Trade Signal

Investment Rationale

Investment Thesis
While the longer-term uptrend in the S&P 500 remains intact, recent price action in SPX suggests a loss of short-term momentum that could lead to a tactical pullback. The index has fully recovered from the recent tariff-driven correction, but its advance stalled after reaching a new high of 5,963.60 on May 19. Since then, a 2% retreat to 5,842.01 by May 22 has emerged, signaling potential exhaustion. With elevated valuations and signs of softening economic data, the risk of a near-term retracement is increasing as the market digests recent gains.

Technical Analysis
The SPY, which is the ETF that tracks the S&P 500 index, has rallied above its 20-day (around $584.42), 50-day (around $569.03), and 200-day (around $569.07) moving averages. Price action has flattened near a recently established resistance level, and the recent slip from the highs aligns with weakening breadth and potential bearish divergence in momentum indicators. A decisive move below these moving averages could accelerate a move lower toward the $560 support range. This technical picture suggests a potential short-term pause or pullback within the broader uptrend.

Fundamental Analysis
Fundamental risks are skewed to the downside as equity valuations remain stretched and macroeconomic uncertainties mount. While earnings season provided a temporary lift, underlying metrics are beginning to deteriorate, and forward expectations may not fully reflect emerging risks. As we reach the tail end of quarterly earnings, most Wall Street forecasts place the S&P 500 forward PE ratio around 21x, above the five-year average of approximately 19.5x:

• SPX Forward PE Ratio: 21.1x vs. Five-Year Average 19.5x

Additionally, higher credit card delinquencies, and unresolved supply chain risks related to China pose further downside catalysts. Even if geopolitical and tariff issues resolve quickly, supply chain normalization lags could lead to temporary shocks and margin compression across sectors.

Options Trade
To position for a short-term pullback while defining risk, consider buying the SPY May 30, 2025 570/560 bear put vertical spread for $1.15. This trade involves buying the 570 put and selling the 560 put, resulting in a $115 debit per spread with a maximum profit potential of $885. The setup provides a favorable risk/reward ratio of over 7.7:1 and benefits from a move toward the $560 area of support. With only eight days to expiration, this is a high-conviction, short-dated play on a tactical decline, leveraging short-term weakness without over-committing capital.

SPY – Daily

Trade Details

Strategy Details

Strategy: Long Put Vertical Spread

Direction: Bearish Debit Spread

Details: Buy to Open 18 SPY May 30 $570/$560 Put Vertical Spreads @ $1.15 Debit per Contract.

Total Risk: This trade has a max risk of $2,070 (18 Contracts x $115) based on a hypothetical $100k portfolio risking 2%. We suggest risking only 2% of the value of your portfolio and divide it by $115 to select the # contracts for your portfolio.

Counter Trend Signal: This is a bearish trade on a stock that is expected to continue lower off a recent area of resistance.

1M/6M Trends: Bullish/Bullish

Relative Strength: 6/10

OptionsPlay Score: 27

Stop Loss: @ $0.58 (50% loss of premium)

View SPY Trade

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. 

View SPY Trade