Spy Put Hedge, SPDR ETF First Trade Of The Day

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SPDR ETF covers numerous Exchange Traded Funds. I receive a lot of emails asking about them. You can review all of them through this SPDR ETF Link. For those who keep asking I rarely use any of the other SPDR ETF products for my trading. I stay with the SPY ETF which I think it a superior product in many ways. My interest is primarily with the Spy Put Options which I use for hedging my portfolio during market downturns.

After posting my second article on the Spy Put hedge for today, the waterfall trade I spoke of appeared and I bought my spy put options. Let’s look at the criteria met and see how I decided to buy.

SPY PUT And Buying The Top

Recalling from the second article, I laid out the morning waterfall. The waterfall is a trick I learned years ago and which can often be relied on to indicate overall market direction for the day.

I have already explained B, C and D in the second article.

E) Is where I bought my spy puts. The reasons are F and G below.

F) Momentum is higher than the previous rallies but it was a spike up, not a trend back up.

G) Momentum eroded quickly as buyers in the S&P 500 stocks remained cautious.

I bought my spy put options on the erosion of momentum. You can see in the momentum chart attached to the S&P 500 chart below that momentum was the highest of all the previous rallies but it eroded quickly. If momentum has remained strong then I would have held off as it is best to wait for momentum to erode before buying the spy puts.

Spy Put Buying At The Top Of The Next Waterfall

Buying the top of the next waterfall

Ultimate Oscillator and Spy Put Trade

The other chart worthy of a look was the Ultimate Oscillator. This chart show the very typical overbought readings I trade against. But it is always best to wait a bit and watch the S&P 500 as the overbought readings develop. Often the S&P 500 will push higher and the overbought readings will stay longer. I like to wait for a bit and see if the S&P 500 can push any higher on the rally attempt.

Ultimate Oscillator for timing Spy Put Options purchase

The Ultimate Oscillator readings for buying the first set of spy put options contracts

But combining the momentum tool I can see how momentum is eroding. With the ultimate oscillator right in line at overbought and momentum eroding quickly I bought my first set of 30 Spy Put Options contracts for $3.34 for the June 29 2012 expiry. The Spy was at 132.10.

Spy Put Options and Going Over The Waterfall

I had no idea when I bought my spy put options that the S&P was going to set another new low for the day. On the chart below you can see the outcome for my first set of spy put options. E is where I had bought my spy puts.

The first two small rallies back were poor and momentum was very low. I saw no need to worry about a push higher. Then the waterfall fell lower by noon and then for whatever reason the market just tumbled to 1312.

I sold my Spy Put Contracts there at 131.66 for $3.63, but as investors probably know the market bounced a bit and then sold lower.

Spy Put Options and The Waterfall

The waterfall was unusual but the profit on the Spy Put Options was excellent

Spy Put Options Returns For The First Trade

The first trade was highly profitable and my return was 8% for this trade. Total income earned was $781.00 with commissions. Select this Spy Put link to review all the trades for 2012 for the spy put.

The S&P 500 looks like it might be ready to try to recover some lost ground going into the afternoon. I may get a second trade in the spy put later today.