SPDR S&P 500 ETF Trust (SPY): S&P 500 Lovers, Pick Your Poison

With the S&P 500 nearing record levels, make money on the SPY ETF

The denizens of the Street are all aflutter over the S&P 500‘s coming retest of all-time highs. With its peak just 1% away, surely the bulls will find the mustard to revisit the summit once more, right?

Energy SPDRWhether or not the SPDR S&P 500 ETF Trust (SPY) succeeds in its coming breakout bid remains to be seen. But, one thing is assured — the mega resistance looming overhead creates some interesting trading opportunities for SPY bulls and bears alike.

Let’s start with the bull case. From a price perspective, things are just peachy. All short-term trends point higher. The 20-day and 50-day moving averages are trending higher. And despite a few years of choppity-chop, the long, long-term trend of the SPY ETF is still pointing higher.

Matter of fact, the recent range carved out is creating one heck of a high base on the weekly chart.

SPY
Source: OptionsAnalytix

As the tech analysis veterans like to say, “the longer the base, the higher in space.” Should buyers succeed in the coming breakout bid, they have a substantial launching pad to rocket from.

The SPY ETF Trades

With the heart of summer fast approaching and markets in bull mode, option premiums have descended to dirt-cheap levels. If you’re looking to bet on a breakout here, grab the Aug $210/$215 bull call spreads for $2.50 or better. It’ll double your money if SPY can ascend to $215 by August expiration.

And what of the bear case?

Perhaps the most compelling argument for betting against a breakout is the attractive risk-reward. After all, if the SPY ETF fails at resistance yet again there is a lot of potential downside. See the Aug 2015 and Jan 2016 swoons for example.

Better yet, contrarians hopping in here could use a breach of the $214 level as an exit point. Such a logical, quick stop loss level is delivering a seriously skewed risk-reward ratio. That is, little risk, big reward.

Even if you think it’s coin flip odds that the breakout succeeds, there’s no denying the attractiveness of a bear play here. The cheap option premiums works to the advantage of bears as well. Consider buying the Aug $210/$205 put spread for $1.90 or so. Should the S&P 500 tumble back below $205, a 150% return will be delivered straight to your doorstep.

At the time of this writing Tyler Craig had no positions on any of the aforementioned securities.

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Article printed from InvestorPlace Media, https://investorplace.com/2016/06/sp-500-spy-etf-spy-stock/.

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