Background
Yesterday, the S&P 500 exchange-traded fund (SPY) cleared its 30-day moving average on above-average volume and might be breaking out of a bull flag. The flag itself has taken some two months to complete, which could suggests further gains in the index.Â
Source: Saxo Bank
The bull flag had a pole with a base of $228 and a top of $240.32 from March 1. The rally could be in the works for a repeat over the next couple of months. This is why we are approaching this trade as a short-term opportunity, using options on the ETF (SPY).
Management and risk description
The risk in the trade is contained within the 5-point wide spread. If both legs expire in the money, the client will buy shares at $237 and sell them at $242, and could incur additional commissions and fees. Make sure you close the trade before expiration and avoid going through assignment. We will provide updates on the trade.
Parameters
Underlying: $238.15
Status: opening trade
Trade: Buy +1 vertical SPY 100 16 June 17 237/242 call at $2.63 or $263
Breakeven at expiration: $239.63
Maximum loss at expiration: debit paid ($2.63)
Maximum gain at expiration: ($5 – $2.63) or $2.37
* The above numbers are indicative and do not include commissions.
Stop:Â no stop; the above trade takes 1% of capital from account value
Target:Â $242 or above
Time horizon:Â 1-2 months