Good morning everyone. Yesterday the S&P 500 dropped and once again touched that 200-day moving average it’s been battling with since it first tested on February 9th. And with the VIX nearly hitting 20 and the VIX futures term structure still in mild backwardation it’s not the time just yet to be getting back into long stock trades. Perhaps tomorrow or early next week, but there is a trade we can take today that’s going to be very familiar to you.
Let’s sell another Bull Put Spread today on the S&P 500
Recall from my daily blog on April 9th, you can view that article here to refresh your memory, but I introduced the Bull Put Spread in the VTS Discretionary Strategy. They are fantastic short-term trades for when a stock or index is testing a strong support or resistance line.
As you can see the S&P finds itself right back testing that lower boundary which is a great opportunity for a trade. I always use Bull Put Spreads as short-term trades designed to profit if the lower boundary is not breached.
We sold the previous trade on April 9th and it worked out perfectly for us with a nice bounce off the lows. I will be doing the same thing today, hopefully with similar results.
Since the 200-day moving average (green line) is slowly rising it’s actually a little higher today than it was 2 weeks ago so the only difference today is we will adjust our strike prices a little higher than the previous trade. The trade on April 9th was a 258 / 253 Bull Put Spread, and today we will use the 260 / 255 strikes.
For those who follow the VTS Discretionary Strategy (again likely in a paper trading account until you’re more comfortable with option trading) but here’s what that will look like:
*Remember Vertical, Bull Put Spread, Credit spread, it’s just semantics, they are the same thing. In TOS it’s a vertical:
* the premium might change from now until the trade is executed but the general structure will be the same.
SELL to OPEN 5 x SPY 18 May 18′ 260 PUT
BUY to OPEN 5 x SPY 18 May 18′ 255 PUT
Credit: ~ 0.96
Stop-Loss: This is a short term trade meant to profit from a bounce off the 200-day, so if the SPY sees a daily close below the 200-day moving average (around 260) we will close the trade out.
In choppy markets with a lot of whipsaw action like we’ve seen this year it’s not uncommon for me to get the same trade type off several times over several months in a row until the markets find a trend. We like trending markets (who doesn’t right) but the great thing about option trading is it’s not required. We can still find a few windows of opportunity with a full tool box of trade types.
Current VTS Total Portfolio Solution Allocations
10% VTS Conservative Vol Strategy – Optional replacement for lower risk tolerance investors
10% VTS Aggressive Vol Strategy – Optional replacement for higher risk tolerance investors
Temporarily paused: VTS Tactical Volatility Strategy
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