S&P 500 Index ETF Monthly Income Trade

By Gregory Clay of The Option Player

Option Trading Strategist & Financial Writer • Sep 16, 2016 at 7:41 AM EDT

The S&P 500 price pullback sets up a monthly income trade.

We set up S&P 500 Index ETF (SPY) short-term (29-day) option strategy. Investors could simultaneously:

Sell the October 14th option expiration SPY $207.50 put for $1.61 (Thursday’s closing quoted bid/ask mean)
AND
Buy the $202.50 put at $.93

The difference between funds received and paid out is a $.68 per share credit which we keep if the SPY ETF closes above $207.50 on Friday October 14th but immediately exit the position if it appears the price will end up lower.

Why we recommend it:
As evidenced in the chart below, the S&P 500 Index pulled back along with the overall market over the past week. We are making a technical play on the S&P 500 Index ETF (NYSE: SPY). The ETF price has stabilized as the index became oversold and downward momentum dissipates. Also, depending on how the investors interpret Fed comments at next week’s FOMC meeting, prices could surge back toward recent highs. We are betting the SPY ETF won’t be above our target price at October option expiration.

spy-dailychart-09152016

52-Week High: $219.09

52-Week Low: $182.86

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