SPY gapped lower to 447.92 before continuing lower to the low of the day at 445.27 just after 11:00. From that point SPY moved steadily higher, trying to close the opening gap. Just before the close SPY hit the high of the day at 449.23, before drifting slightly lower into the close.
Yesterday I mentioned two spread combinations I would be tracking today. The first involved a 451/452 call spread, combined with a 450/449 put spread. The total cost at the close on Monday was $0..70. The opening gap down made this combination became immediately profitable, and quickly moved near the maximum expected value of $1.00.
There would have been ample opportunity to close this trade out above $0.90. As SPY rallied into the afternoon, the value dipped to near breakeven, but did close out profitable.
The second combination involved a 452/453 Call Spread, combined with a 449/448 Put Spread. The total cost of this trade was $0.44. Once again this trade became profitable at the open. The value climbed steadily, trading between $0.80 and the maximum expected value of $1.00. The value of the trade did decline as SPY moved higher into the afternoon, falling slightly below breakeven near the close.
Both trades would have offered ample opportunity to close out at a profit. Using our $0.85-$0.90 target price, both would have been closed out at a profit.
Today SPY closed at 448.75. Our combination for tomorrow will be the 450/451 Call Spread for $0.29, and the 448/447 Put Spread for $0.41, for a total of $0.70.
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