For some reason my intuition is telling me that we reached a peak for this upwards swing, therefore I am positioning myself for a potential downturn.
This week was highly challenging with some of the stocks skyrocketing as if we were about to have a major economic boom. I was only able to close one of my trades, which was an earnings play on IBM and it produced an incredible result.
For those, who are new to my daily market comments, I place and document one of my options trades each day with the objective of helping everyone learn how to trade options.
What's my trade for today?
Given my feel for the market I purchased a SPY put calendar spread: Sold the Feb $375 put and bought the May $375 put. The volatility is very low so this spread only cost me $5.50.
What I am hoping for with this trade is that the SPY is going to drop so that I will be able to close it for a profit.
The blow table shows that my Feb position was trading $1.21 higher 3 days ago while my May position was trading $2.73 higher, which means that if the market goes down then the movement of my May position in dollar terms will be higher than my Feb position enabling me to close this deal for a profit.
If the SPY doesn't go down then I will still have the option to roll my Feb position and reduce my cost basis.
Trade Type: Calendar Put Spread - Short Feb / Long May