117/112 SPY Trade Idea

I’ve been looking for some good trade ideas in SPY options, keeping in mind:

  1. The market is NOT oversold – RSI is holding up but heading south.
  2. The market is NOT panicking – VIX is not lurching skywards (though it’s relatively high at 31).
  3. The $SPY chart shows major range resistance between 110 and 128 – we’re sitting at 118 before the open, and futures are showing weakness. $ES_F

This is a tough spot to trade because we’re sitting in the middle of a perceived range and headline risk is very high. This morning might bring some good news (or not) to the table with claims and durable orders being released before the open.

My interpretation is that any good news might bring some short covering and a small bounce, and that the expectations for bad news are being baked in, slowly day after day so even bad numbers won’t send the market into panic. The market is trending downward in an orderly fashion with the current headline focus on Europe.

This is the 6 month $SPY chart:

S&P 500 ETF

Notice also that during August and September we held a 112 – 120 secondary range for almost 8 weeks. This might be a sign that the $SPY will again hold this range as support if the $SPY continues it’s current trend.

I’m looking at the following December ratio spread  for a small credit.

Buy 1x 117 puts and sell 2x 112 puts