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.
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.
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 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.