A Line in the Sand…

A couple of weeks ago, I wrote about the triangle formation in SPY and that it’ll move swiftly in either direction. The shorts won that battle, the Nov 4th 215.5 puts are now trading at $3.80, a modest 25% Profit in 2 weeks. 

 

We’re now approaching that $212 support level which brings us to a bigger line in the sand. $211-$212 is a major support level that needs to be held for this bull market to stay intact. A break below this important support level, can bring quick moves lower towards $206 and extended targets of $200-201. Implied volatility has picked up and is now trading in its 27% percentile. Calls are still trading at a higher implied vol over puts; 15.2% vs. 13.6%. This makes the bullish bet a bit more expensive than a bearish one. Which side are you on?

 

Bullish Bounce: look for a rally up towards $216 high’s. Buying a Nov 11 212.5 Call @ $3.70 would net a 41% return in 7 days.

 

I’m Bullish on SPY

 

Bearish Breakdown: look for a quick move lower towards $206. Buying a Nov 11 212.5 Put @ $3.20 would net a 103% return in 30 days.

I’m Bearish on SPY

Send us your comments and questions at [email protected]

 

Tony Zhang

Head of Product Strategy