Spy Put (SPDR 500 ETF) And Trading The Morning Gap

Sometimes trades are just set up so well that you cannot ignore them, you have to trade them. That was the case with Monday’s Spy Put Options trade.In my Intraday comments on Monday Oct 28 I mentioned that in the morning around 10:15 there had been a gap around the 1762 valuation. The 1 minute intraday chart from that intraday comment is below. I wrote that I expected the market would end probably right around that gap at 1762 as it is rare for a gap like that to appear and not be filled toward the close.

This also meant that the SPY PUT trade could be used as the market was climbing to above 1764 in the later afternoon and would have to fall back to fill the morning gap. This is not the kind of trade that will bring in huge profits. Normally I can earn between 10 cents to 20 cents on such a trade. It is not the profit made with this Spy Put Options trade that is the reason to enter it. It is the ease with which this Spy Put Options trade can be done that makes it worth trading.

SPY PUT morning gap in the S&P 500

The early morning gap in the S&P 500 set up today’s SPY PUT trade.

Spy Put Options (SPDR 500 ETF) Trade

I immediately changed the chart on the S&P 500 to the 5 minute time frame. You can see that chart below. I waited until around 2:30 and then watched for an overbought indication. You can see that from 1:00 PM to 2:30 the S&P was basically moving sideways with a slight bias up. The overbought nature of the S&P in general kept the index from advancing a lot higher in the afternoon so I felt from the chart pattern than the likelihood of the index shooting higher was slim. I saw the overbought indicator from the Ultimate Oscillator and waited for it to begin to erode and around 2:35 I bought my Spy Put Options. I went out to Nov 8 2013, two weeks out. I picked the $176 put strike since it was at the money.

Once the S&P began to fall I waited for 1762 and with only a few pennies of profit I held off selling my Spy Put Options contracts and waited to see in the 1762 level would hold. The S&P kept slowly moving lower and the oversold indication from the Ultimate Oscillator signaled that I should consider selling. I did not but held to see if the S&P could break 1762. It did and hit 1760 but then on the second candlestick after it broke 1760, it turned green and the oversold indication from the Ultimate Oscillator was not as strong. I sold my puts at that level for a few pennies more.

Spy put Trade (SPDR 500 ETF) Oct 28 2013

The overbought signal commenced the Spy Put Options trade for Oct 28 2013

Summary – Spy Put Options Trade Oct 28 2013

With a trade for just a few pennies I always buy 100 Spy Put Options contracts to make trading and risking my capital worthwhile. Normally I would not even bother to trade the Spy Put Options when the market direction is clearly higher, however the morning gap is so frequently filled that it is worthwhile doing the trade. When a trade is simple and easy to execute its hard to turn down.

Today’s Spy Put Options resulted in 11 cents or $1100 before commissions. 100 Spy Put Options contracts cost $105.00 to buy and $105.00 to sell so the total return was $890.00. Still though this was an 8% return on the Spy Put Options trade which considering how easy trading this type of gap is, makes it worthwhile.

Spy Put Options Internal Links

Review 2013 Spy Put Options Trades

Review 2012 Spy Put Options Trades

Review 2011 Spy Put Options Trades

Review 2010 Spy Put Options Trades

SPY PUT Options Strategy Articles

Spy Put Options External Links

SPY PUT SPDR 500 ETF Fund Overview

SPY PUT SPDR 500 ETF Dividends

  • Mike

    Can I ask where your stop loss would have been on this trade?

  • On this trade Mike I was willing to lose .15 cents or $1500 plus commission. I have done well with the Spy Put Options this year and feel the risk of 15 cents is well within range.