4-2-19 Tip of the Morning: Bearish Put Spread 4-2-19

Summary

In this market analysis, the speaker discusses the recent performance of the SPX index, highlighting a rise from 2,850 to 2,860 despite recent euphoria. They emphasize the market's natural fluctuations, comparing it to an accordion that compresses and expands. Rather than taking a bearish stance, the speaker suggests a potential pullback would be healthy. They propose a speculative strategy involving a put spread with an expiration in April, aiming to profit from a market dip. The analysis focuses on managing risk while capitalizing on market movements.

Takeaways

• 📉 The SPX index is currently around 2859, down 8 points.
• 🚀 Since Christmas Eve, the SPX has risen about 500 points, reaching around 2850.
• 📈 The market has seen an additional increase of 50-60 points in the past week.
• 📊 The SPX is above the 200-day moving average, currently at 2757, indicating a bullish trend.
• 📚 The speaker suggests caution, stating that markets cannot experience continuous growth without correction.
• 🔍 The analogy of the market being like an accordion highlights its cyclical nature—expanding and contracting.
• 💡 The speaker is not outright bearish but anticipates a potential pullback for market health.
• 🗓️ For speculative trading, the speaker recommends looking at options that expire in about three weeks.
• 🔄 The speaker considers buying a put spread as a strategy to manage market fluctuations.
• 💰 A specific trade example involves buying a 2840 put and selling an 2820 put for a 20-point spread, costing $5.

Q & A

What is the current market level mentioned in the transcript?

The current market level for the SPX is around 2859, which is down 8 points.

How much has the SPX risen since Christmas Eve?

The SPX has risen about 500 points since Christmas Eve, going from 2350 to 2850.

What does the speaker mean by saying 'you don’t write a 30 chapter book in one chapter'?

The speaker is indicating that while the market has seen significant gains, it is unlikely to continue rising without a pullback; market movements are not linear.

What analogy does the speaker use to describe market movements?

The speaker compares the market to an accordion, suggesting it will expand and contract over time.

What type of investment strategy is the speaker considering for the speculative part of their portfolio?

The speaker is considering buying a debit spread, specifically an April 24 expiration put spread.

What are the strike prices mentioned for the put spread?

The long strike is at 2840, and the short strike is at 2820, creating a 20-point spread.

How much does the speaker expect to pay for the put spread?

The speaker expects to pay about $5 for the put spread, which translates to $500 per spread.

What potential profit does the speaker mention if the market is at or below the short strike at expiration?

If the market is at or below the short strike, the spread could be worth $20, leading to a profit of $15 per spread.

What does the speaker suggest regarding the duration for the options trade?

The speaker suggests going out three weeks for the trade but considers that two months could provide more distance and time for the trade to play out.

What is the speaker's overall outlook on the market as discussed in the transcript?

The speaker is not outright bearish or bullish; instead, they acknowledge recent gains but suggest a potential pullback could be healthy.