With stocks in their neverending march higher, today’s trade idea plays off that very notion.
My guess is you’re probably familiar with the SPY ETF that tracks the S&P 500. Well, I’m looking at selling a put credit spread on a pullback of the market towards the end of the week (like today).
SPY Hourly Chart
For the past several months we’ve finished nearly every week near the highs, especially if we got a pullback before Friday. With today’s market looking to open lower, this could be a good opportunity.
This trade is a bit more high-risk than normal. Ideally, I want to get a 50/50 risk-reward on the trade. From there, I want to try to get 50% of the maximum profit.
Now, the key to working this trade is waiting for the pullback and then using support levels to enter this trade. Gap-fill levels work around $336, or anything else you think might be significant.
As a refresher – a put credit spread involves selling a put contract at (or even a little bit in-the-money) or below the current price and buying another below that strike price. You receive a credit for this transaction. Ideally, I want to get $0.50 if the spread is $1.00.