Here is a trade idea that will make money if the market continues to move higher or even if this is a top and the market breaks. ?
Keep in mind, this an idea and not a recommendation. I?m in the education business and not the advice business. What I teach is a way of thinking about the market through options.
My idea is a put 2:1 options back spread for a credit. If the market is stable to higher you have a put for free or nearly so?and if it really pukes your extra put kicks in. We?ll use the S&P 500 ETF (SPY).
With SPY at 226.37 one can sell the January (not enough time left in the December options) 225 put at 3.10?one time and buy the January 2.17?put twice at 1.10 ?for a .90 credit. At 225 or above on expiration you make .90 and a move below 217?also makes money because you are net long puts.
The risk here is known as Pin Risk. That means that the worst case scenario is an expiration exactly on the long strike, 217. That exact expiration would cost 710. Admittedly, that is unlikely but could happen.
So, that?s today?s trading idea. As it is net long options, minimal margin is required. The position does bear watching, however, so it is not something to put on and wait until expiration.