Don't Fear the Reaper: Going Short the Runaway Train that is the S&P 500
Talk about a run, the S&P 500 seems to go ever higher even when you think it cannot. This is probably why I took a more conservative approach betting on a pullback.
Limited Risk with a Credit Spread
This the the position I just put on. It is generally know as a bear call spread.
It is a hedged bet on a pullback in the market over the next couple weeks as I selected options with a Jan 31 expiration.
How it works...
Basically I'm betting that the S&P 500 will be at or below 332 come January 31. The S&P doesn't even need to pullback for this trade to make money, it could stay right where it is at the moment (331.60 as of trade time) or go lower and this works outs.
If that is the case I get to keep the credit I received of .50 per contract.
I sold the 332's and I bought the 333's creating a spread (hedge) on my position.
This means the most I can make on the position is .50 per contract but that is also the most I can lose.
Conservative strategy
It is a conservative bet, but this market seems to be in FOMO mode and I don't want to fight that to aggressively no matter how much I think the market will pullback in the coming weeks.
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Good luck man. I think it's a rational position to take, but unfortunately the market is pretty irrational at the moment!
Personally I think we're partying like it's 1987 but I do hope that this comes off for you and sanity returns.
Thanks, it a very much a low risk trade as this market is crazy. I'm hoping to get a better chance come summer time leading up to the US elections