
Rocket Equities & Options Report 01-09-23 New SPY Debit Put Spread 370-330
Rocket Equities & Options Report
By Tommy O’Brien
January 9th, 2023
The markets are continuing to accelerate higher following Friday’s jobs number. We are going short this market. The SPY is nearing the $394 price point, which is near the .618 of the move lower since December 14th.
We are going to purchase a put spread below the market, going out a couple months to March 17th expiration. The expected move in either direction for the SPY March 17th options right now is about $30.83, which is about a 7.85% move in either direction over the next 2.5 months. We are looking for more volatility than the market is expecting, and we are bearish. We are going out of the money here, and giving ourselves room profit potential down to about 330 in the SPY.
Buy the $370 March 17th SPY Put
Sell the $330 March 17th SPY Put
Debit of combined put spread about $4.60. Max risk $460.
This will cost (debit) about $4.60 ($460 per options pair), and that is our max risk. This is a low probability, high reward trade. We are almost 24 points out of the money in the SPY, and our breakeven will be about $365.40 in the SPY, which is about 7% below where the SPY is currently trading. Our max profit would mean a 16% sell of the SPY by March 17th. The Fed meets at the end of this month, and then their next meeting is March 21st-22nd, so we would be looking for negative action leading into that meeting. Many times, this trade will result in a max loss so keep your risk in check, but I see a lot of headwinds coming into earnings, and a Fed that is going to follow the data, and the data isn’t about to let them off the hook before the March meeting.
Here is the hourly below of the SPY.
This is a volatile market and I prefer options when the VIX is relatively low at 21.52 yet won’t back off today to the downside even with markets up 1-2%. Here is the NQ hourly, along with the VIX.
Banks kick off earnings Friday, with tech stocks kicking things into high gear in 2 weeks. We get December CPI Thursday morning. Economists expect headline CPI to come in at 6.6% vs. 7.1% for November. Core CPI is expected to come in at 5.7% vs. 6% last month. The market is expecting core CPI m/m to rise 0.3%, up from 0.2% in November. Keep your eye on that m/m core number, most importantly.
JPM, C, BAC, and WFC all report their earnings Friday before the open. Stay tuned for updates!
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