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Offering a “relatively stable way to get short” in today’s market
If a larger market correction is imminent, bear call spreads on market ETFs can provide a relatively stable way to get short. With 25 days to February expiration, the short 113 call strike on the SPDR S&P 500 ETF (NYSE: SPY) is about 2.7% out-of-the-money from the current 110 level.
SPY Credit Spread Trade Details:
The SPY is currently trading at $110.01.
Credit Spread/Bear Call Spread–
Profit/Loss Details:
Maximum Profit: $0.31 (the credit collected). This excludes commissions, though exit commissions will not be required if both calls expire worthless.
Maximum Risk: $0.69 (the difference between strikes minus the credit collected). Reward on risk is approximately 45% in 25 days.
Breakeven: $113.31 (the strike of the lower call plus the premium collected).
For more on SPY:
Volatility Calms Ahead of Recovery Rally
ETF Preview: Oil Sector Funds Flat to Firmer Amid Earnings, Exploration, Venezuela Auction News
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