A Quick Short Cheap Shot

Hi Shoppers,

I think it is safe to say none of us likes the early sunset the winter brings.  Even people who enjoy the winter cannot like that feeling that it’s 9:30 at night because it is pitch black out at 5:30 pm.

Makes it so much more difficult to get that workout in after work, which is never easy to begin with.

Tonight’s sunset here is at 4:27 pm.  We are still enjoying 9 hours and 42 minutes of daylight today.  The shortest day of the year is December 21st, the winter solstice, which only has 9 hours and 4 minutes of daylight.

I’m sure you remember, in the “old days”, leaving for work in the morning in the dark and returning home in the dark.  At this point, I think we would all prefer that to being on lockdown.

I am seeing a chart indicator that is making me think of all this.  It is a Japanese candlestick called the Dark Cloud Cover.  I am seeing it in the SPY chart.

In this sequence, today’s long body red candle is covering yesterday’s candle.  

Today began strong but the sellers won out closing on or near the low of the day.

I think this provides us an opportunity to take a quick short, cheap position in the SPY puts.

I like buying the SPY Nov20 355/350 put spread paying $1.15.  The 355 puts have a 17.96 implied volatility and the 350 puts have a 20.30 implied volatility.  I like that, shows we are buying a cheap spread.

By buying the Nov20 cycle, which expires Friday, we are paying less dollars.

But, we also have the clock running against us and running quickly.  So even as SPY moves our way, our puts will be decaying with so little time left.

I would recommend taking the profits at the $1.75 level and better.  I would cut my losses on this spread when it begins trading $.80.


So, I wrote this up on Wednesday evening and the spread worked but you would have had to sell it around $1.70 before the SPY traded higher.

Right now, Friday morning, SPY is trading 356.94 which is $.66 higher and the spread is $.44.  That is how fast those options decay.  So when trading so close to expiration, you need to be quick to take your profit, the clock is your enemy.

It is actually fun to watch that 355 put as the SPY trades right around that price into the end of the expiration day.  You can actually see them melting. This is one of the reasons why I love Mark and I using this “melt” effect when it comes to volatility with our awesome service, “Vol Edge,” that you can get here.

Keep in mind, after December 21st the days begin to get longer and spring will be just around the corner.  Well, kind of.

Thanks for reading…See You Next Tuesday!

Licia Leslie

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