Let’s start the week out by looking at trade examples in the SPY. We’ll take a look at what is going on this morning, a great indicator that is effective in this situation, and why the SPY is an excellent choice for trading options. At the bottom of this email, I even include an update on a previous example.
SPY, or the SPDR S&P 500 trust was one of the first exchange traded funds and is also one of the most traded ETFs. That volume makes it ideal for great trades. SPY tracks the S&P and makes it possible for individual traders to trade moves in the entire index.
Look at what the S&P did on Friday to help us get an idea of what to expect from the SPY this week. The image below is Friday’s price activity.
This chart image is courtesy of FINVIZ.com a free website and gives a quick view of each day’s movement. Understanding the direction, the S&P was moving on the previous trading day is a great place to start.
Next, let’s look at chart that includes the Percentage Price Oscillator or PPO indicator. We are specifically looking at the lines in the PPO to cross but you can get more information about this indicator here.
The PPO is heading up but seems to be flattening out and there is a red candle so there may be a change in direction. It is ok to wait for a clear direction before deciding to place a trade. We will look at a call trade with the thought that price will move up, however this may be a time to sit on the side.
Potential SPY trade:
In this example, if the price continues to rise you could consider a Call trade if it moves above 446. The short-term target is $451.
Here’s Why an Option Offers A Big Potential Payout
The stock price in this example is $445.65. If price moved to $451 you would make about $5.35.
If you were trading options and selected a 451 Call option strike, you would pay a premium of around $5.37 for the Sept 15th expiration, or $537 for the 100-share option contract. If the stock price moves to 451 the premium is apt to go up about $2.50. Your premium of $537 plus $250= $787. That is a profit of 47% over a short period of time.
Remember, you can take profit anywhere along the line, you don’t have to wait for the expiration date to sell. It is often wise to take profit when it is earned, especially in a volatile market.
Stay positive and know you can do this. Knowing creates positive results! A part of the abundance process is letting go of anything negative, which creates space to receive.
I wish you the very best,
On August 7th we discussed buying SPY 452 calls. It did not reach our target entry price.