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Try a SPY Bear Call Spread in Weak Market

Trade works as up-trend wanes, volatility pops in SPDR S&P 500


One of this week’s Market Taker Edge trades is to sell the SPDR S&P 500 ETF (NYSE: SPY) SPY May 135/137 Call Spread for a total credit of 67 cents or better per spread. That is, buy the May 137 call and sell the May 135 call. This is a moderately bearish market play for options trading investors.

This spread will achieve its maximum potential profit of the premium collected if the exchange-traded fund is trading below 135 when the options expire on the third Friday of May. The breakeven for the strategy is $135.67, or about 2% above current levels. The maximum potential loss is $1.33, should the SPY be trading above 137 at expiration.

Here’s the rationale. The market has hit some resistance after the expected comeback it’s made over the past two weeks. The market may not necessarily reverse course and head south, but the strength of the up trend is waning. So, what’s the best way to play this? Let’s look at the volatility. There was a small pop in the implied volatility for SPY at the end of the week. Even with the weekend time decay coming out these options are still priced a little high making option-premium-selling strategies the way to go.


Dan Passarelli of writes the Market Taker Edge options newsletter. Dan has more than 17 years’ experience in the options industry as a market maker, Options Institute instructor and author of “Trading Option Greeks.”

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