Category: Strategies

The Middle Path $SPY $QQQ $IWM $DIA

It’s getting close to about six weeks since the start of the correction. SPY went from about 285 in the final days of January 2018 to a low of about 256 on February 9 or 10. 

There was a rebound to about 275 around February 25 or so and then another pull back to 265 around the first of March. 

Another rally to 277 and now we sit about 275. Let’s take a look. 

Here’s what I see, this looks like a couple of higher highs, after the pull back of course, and a couple of higher lows. This assumes this low holds at 275. 

Providing this happens I think we ultimately get back to the rally and a new high, maybe before the end of this month or the next.  

But until then I am banking a bit on us trading within a range from 275 to around 283. 

Since I am net long the SPY I am selling call credit spreads every time we have an intra-day rally. At the end of the day and selling occurs these spreads fall in value. 

Should we have more of a pull back, I will sell corresponding put credit spreads expiring on the same date as the call credit spreads and thus create iron condors for that date. 

Stocks can go up or go down or they can do the unthinkable. They can go sideways.  

$AMZN goes Brick and Mortar in my Home Town. I’m celebrating with an Iron Condor.

In the Austin American Statesman, our local paper, it was noted that Amazon opened a bookstore in a mixed use area of north Austin called the Domain.  

The Domain is a happening place. Apple has a new store there specifically built for them and all the hip retailers are there, too. Even Tesla has a showroom there.  

This is the first store for Amazon in the state and follows other stores in Seattle, Portland, Los Angeles and New York. Notably, none of the other 20 finalists for HQ2 have a bookstore but I believe that one is coming to Washington, DC.

In celebration of this event, I’ve decided to open a new Iron Condor in $AMZN. I already have a number of other spreads open in the name, but with today’s little Gary Cohn blip I think the downside is set for a bit, at least until a week from Friday when this expires. 

An Iron Condor is the marriage of two credit spreads, one put credit spread and one call credit spread. All the options expire on the same date, and this date is Friday March 16. Typically, one will use this strategy when one feels the stock will close in a range on the expiration date in between the two credit spreads.  

For the credit call spread: I’ve sold the 1575 call for $880 and I have bought the 1585 call for $655. Spread credit = $215 

For the credit put spread: I’ve sold the 1500 put for $1225 and bought the 1490 put for $1000. Spread credit = $225 

The Total Credit is the sum of these two spread credits or $440. The Total Risk is $1000, which is the margin requirement of holding this strategy open. The margin requirement is half of what it would normally be because with these options expiring on the same day it is impossible for the price at the close of that day to be both above 1575 and below 1500. 

It may seem imprudent to risk $1000 to make $440 but remember there is no requirement to hold this strategy to that day. Frequently I will open new spreads around this trade. 

Another name looking to trade today is $NFLX, which someone downgraded. Seems like a buying opportunity of sorts.  

Good Luck today!