It was great to see the market retracting again today and am curious to see where we go from here.
I generated a great deal of profit over the past few weeks and I decided to spend a portion of it on protecting my portfolio from a potential larger downturn by keeping the SPY Jun $375 put option I purchased last week.
For those, who are new to my daily market comments, I place and document one trade a day with the objective of helping everyone learn how to trade options.
What's my trade for today?
#EWZ (#BrazilETF) is one of my favourite ETFs to trade as it's fairly predictable and every time the price goes below $28 it is a great prospect for a naked put option. However, this time instead of selling a naked put I decided to purchase a calendar spread: sold the Feb $30 put and purchased the Jun $30 put. My max loss is limited to less than $1.83 but my upside potential is enormous.
The green section indicates my win zone at 17/02/2023. We can see that if the price and the volatility remain at this level then I could expect about $86.71 profit, while if the price goes up to $30 in the next 11 days then the profit can reach as high as $180. In other words, I could double my investment in 11 days.
It is also worth noting that EWZ is highly correlated with the price of the crude oil. So if oil goes down then EWZ is likely to go down too.