#vertical spread

Last week finished with everything in the green for me.  I didn't have to roll a single spread.  That doesn't happen too often and feels really good when it happens.  

I picked up a SPY Bear-Call Spread late last week in anticipation of the government shutdown.  I was assuming that the market would react negatively and wanted to have a call spread in place to capitalize on that.  

Monday the market headed lower, but Tuesday, when the market woke up and the government had shutdown, the market was up.  I'm assuming that the market doesn't think the shutdown is too big of a deal, so I'm going to pick up a few plays for the week.  I was planning to sit this week out, but since the shutdown seems to have been taken in stride, I'll try to pick up a few bucks in what remains of the week.

We have a quick flip in SPY to tell you about. There's no denying the market is strong and the path of least resistance is to the upside.  However, that doesn't mean there is no opportunity to fade resistance.

That's exactly what we decided to do when SPY popped back up to 142 resistance on August 16th.  Given our short term bearish outlook coupled with the low volatility environment, we decided to buy an around the money put spread rather than sell an out of the money call spread.

We bought the SPY Sep 141/142 Put Spread @ 0.43 debit, meaning we were risking $43 per spread to make $57 per spread if we held to expiration.  We had no intention of holding to expiration, just wanted a quick return on risk of 20% or better.

Here's a look at the spread:

We got the quick sell off we were looking for a few trading days later on August 23rd.  Without hesitation, we sold the spread @ 0.55 for a gain of 0.12, resulting in +27.91% return on risk. Mission Accomplished!

Here's a look at entry (blue oval) and exit (orange oval) on the SPY chart.