SPY Put Options, SPDR 500 ETF, Buying At The Top Of The Waterfall

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SPY Put options is not always the easiest trade but often there are some helpful signs that can be followed by investors interested in hedging their portfolios short-term through using Spy Put Options daily. The Spy is the SPDR 500 ETF.

For investors more concerned about longer-term declines from days into weeks or even months, ultra bear ETFs or the HDGE Active Bear fund which I covered in this article make a lot of sense.

I prefer the SPY Put Options to keep hedging my portfolio and I like to trade it daily, but again the Spy Put Options are not for everyone and do need more maintenance than just buying a bear fund. The returns however in the SPY Put Options far outweigh the returns in a bear fund or certainly they do for me. The liquidity in the SPDR 500 ETF or SPY are excellent for daily trading and premiums are almost always very good.

SPDR 500 ETF – Spy Put Options Tricks

There are however, like any strategy, lots of little tricks that an investor learns over the years when applying the SPDR 500 ETF Spy Put Options to their portfolio. For example, while first thing this morning, May 30,  I was unable to buy spy put options to profit from the big opening decline, (read this morning’s comment) the waterfall morning gives a lot of clues about when to consider buying the first set of spy put options.

The trick then is to spot the waterfall and grab the top of it just as momentum is fading. That is the prime moment to buy spy put options contracts. I know that this will be my first spy put options trade sometime today. Then I want to ride the waterfall lower to the bottom and sell them all. The premium on the puts of the SPDR 500 ETF will be highest right when the waterfall crashes and that’s all I will need for a spectacular spy put options trade today.

Spy Put Options Waterfall

While this morning I couldn’t get into the Spy Put Options because buying in at the bottom is not going to be the most profitable trade and certainly just jumping in and buying spy puts is not the way to trade profitably as well. Instead I look for patterns to develop. This morning on the 1 minute chart a waterfall pattern developed. This is a terrific clue that will get me a profitable trade this morning.

A) The first rally is where I set my first marker. I want to see if the rally can push higher the second time around.

B) The second rally didn’t push higher and so I set my second marker.

C) The third rally didn’t push higher and so I set my third marker.

D) The fourth rally and again a lower high so I set my fourth marker.

Spy Put Options Waterfall

This morning's S&P 500 1 minute chart shows the waterfall in progress which will make the Spy Put Options trade profitable at some point today.

SPDR 500 ETF SPY Puts Direction Clue

Each one of these little rallies is a significant clue. Each little rally cannot get higher. The market direction for today is now set. This means all I need is a big push up and I can buy my spy put options for the next waterfall lower.The above chart then tells me that the market is going to fall lower throughout the day. There is no rally that is going to push this market higher up today unless something unforeseen such as an announcement of rescuing Spanish banks or some such news to turn the day around. Otherwise, this day is all down and the SPDR 500 ETF or the SPY Put options is going to be a profit maker today.

SPDR 500 ETF Spy Puts Decision Based On Momentum

Let’s add momentum to the above S&P 500 chart. Below is the momentum chart this morning and you can see how the momentum is not building on each of these little rallies. This tells me there is no conviction among buyers. Honestly, why buy today when tomorrow stocks may be even cheaper.

So the waterfall has told me that today is going to be all down. Next is the decision when to buy the spy puts on the SPDR 500 ETF.

What I am looking for is a bigger push back to my higher markers, perhaps even as high as A but hopefully at least B. I need to see two indicators. First is a lot more momentum to the upside which will tell me there is some heavier buying going on. The second is the ultimate oscillator telling me that the S&P 500 is very overbought.

SPDR 500 ETF showing momentum on S&P 500

Momentum for the S&P 500 shows no conviction on the rallies higher. This day is down.

SPY PUT Options on the SPDR 500 ETF Demands Patience For Big Profits

For the big profits I have to be patient. I must get both of those signals and then just wait for the momentum to start to fade and I will be buying at the top of the waterfall. That’s will be the next SPY Put Options on the SPDR 500 ETF article. I don’t think it will be long because the S&P 500 today is going to fall a lot lower based on the waterfall pattern that has developed.