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Tuesday, July 31, 2012

September SPY Bear Call Spread

SELL 16 SPY September 145 Call (@0.70)
BUY 16 SPY September 147 Call (@0.38)

Credit: $0.32 (0.32 * 100 * 16 = $512)
Margin: $1.68 (1.68 * 100 * 16 = $2592)

Break-even point(s): 145.32 (Currently at 138.22)
Probability of success: 77.50%
Days to expiration: 52
Max return on margin: 19.05%
Commissions: $48.00 (Assuming a very unfavorable $1.50 per contract)

Order execution:
(Click on image to enlarge)

Profit picture:
(Click on Image to enlarge)

Basically, SPY would have to make a new high for the year in order for this position to be a loser. The August - September period is historically the most bearish for the markets. Even if SPY keeps going up at current speed, the upper end of the uptrend channel points to a high of 144 by September expiration. Stochastics already overbought.

(Click on image to enlarge)

With only 50% of the stocks above their 20SMA, and the McCLellan Oscillator still far from overbought, I know I'm risking some pain with this position. But I don't want to miss the opportunity to sell September calls and this might be the best moment to do so.

If the markets rally hard against the position, I will consider an adjustment further up, when/if SPY hits 144.80.

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