Wednesday, January 31, 2024

Combined Spread Analysis 01/31/2024

 The market gapped lower at the open, dropping to 488.37 a few minutes after the opening bell. A very small bounce to 489.08 was followed by a steady decline that brought SPY to a low of 486.45 just after 10:30. 


At this point the market e=seemed to transition from profit-taking mode following some high profile earnings reports, to FED-watch mode. SPY settled into a trading range between 486 and 488 while awaiting the much anticipated FED decision. The initial reaction was somewhat muted, as SPY dipped just below that 486-488 trading range before recovering to move above that range up to 489.00. The rally was short-lived, and after hitting 489.00 SPY dropped pretty quickly below 484, and after a small move higher continued lower to close near the low of the day at 482.88.



We can see from the Delta Price chart that SPY spent almost the entire day below our +/-2 point range.

A look at the 15 Minute chart identifies our exit points:


The initial drop in the first two hours of trading shows the RSI(5) in oversold territory, with a small positive divergence at 11:45. The MACD also appeared to have put in a short term bottom. Our Bear Put Spread yesterday consisted of a Long Jan 31 '24 490 Put, and Short the Jan 31 '24 489 Put. 



During that time frame our spread was trading slightly above 0.80. Our combined Spread cost outlined in yesterday's post was 0.79, so this would give us a small profit.

With our Put Spread closed out for a small overall profit we would now be looking to exit our Call Spread. At this point any exit above 0.00 would increase our overall profit. Looking at the 15 Minute chart we can see the RSI(5) moving up off the early morning lows, and by 1:15 it had move above 50. With the sideways move pointing to this being a corrective move this served as a decent exit point. Our Long Bull Spread, consisting of a Long Jan 31 '24 492 Call, and a Short Jan 31 '24 493 Call, we can see that this was not terribly profitable, but we could have sold it for a nominal price.


We can see that the spread was trading at about 0.05 to 0.10. If we take the 0.05 and add it to our 0.80 from the Put Spread we have a combined 0.85 compared to our 0.79 entry price. Not the most profitable trade, but a profit none the less. 

Our Set Up for Thursday:

Long Bull Call Spread
Buy Open Feb 1 '24 484 Call     1.44   1.45
Sell Open Feb 1 '24 485 Call      1.02   1.03
Cost = 0.43

Long Bear Put Spread
Buy Open  Feb 1 '24 482 Put      1.08   1.09
Sell Open Feb 1 '24 481 Put        0.77   0.78
Cost = 0.32
Total Cost = 0.75


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