Option Trade of the Day: SPDR S&P 500 ETF (SPY)
Friday brought a second straight day of selling to stocks and all three indices finished lower on the day. The Nasdaq saw the biggest loss at 1.27% followed by the S&P with a loss of 0.85%. The Dow finished with a loss of 0.82%. Despite the losses on Thursday and Friday, all three indices ended higher on the week.[hana-code-insert name=’adsense-article’ /]Nine of the ten main sectors closed lower on Friday with the financial sector squeaking out a gain of 0.11% as the only one in the green.
Of the sectors in the red, consumer staples (-1.67%), tech (-1.39%) and consumer discretionary (-1.02%) saw the worst losses and were the only three to lose more than one percent.
My scans were very bearishly skewed again Friday night with 125 bearish signals and only nine bullish signals.
My barometer dropped to a reading of -89.6 and that is the lowest reading since March 2016.
The drop in my barometer led me to today’s trade idea. I am recommending a bearish play on the SPDR S&P 500 ETF (NYSE: SPY). The barometer has been very accurate with the market swings over the past three months and we see that on the chart below.
We see on the chart four blue arrows. Those arrows represent the four times my barometer has reached a -50 reading or lower. The first one was on January 25 (-79.2), the second one was on March 1 (-72.6), the third one was on March 14 (-60.4), and the fourth one was on Thursday.
Buy to open the May18 268- strike puts on SPY at $4.50 or better. These options expire on May 18. There is some support for the SPY down at the $258 area, but these options will double in the $259 area. I would set a target gain of 100% for this trade.
— Rick Pendergraft[hana-code-insert name=’MMPress’ /]