I called it earlier this week and it turns out I was right about the bear call spread I placed on the SPY. In fact, I’m a bit disturbed as to just how right I may have been about this particular options trade and what it illustrates about the equity markets as a whole. Here’s a chart to take a look for yourself:

Now normally a swing low like that on the SPY wouldn’t frighten me too much, only look at that channel. You can see that the S&P 500 has recently swung into the lower boundary of the upward channel it had formed over the past several months. In my opinion, this means the stock market as a whole could likely be witnessing a reversal of trend movement. Typically whenever an equity index bounces off the lower barrier of a channel, it’s very high probability the entire trend is reversing, so keep an eye on the S&P 500 for more activity like this and be aware that this brief bull market could likely be disappearing.

Anyways, the bear call spread I placed is making a killing. According to my thinkorswim account, this position at 117 and 118 for the strike prices has already accumulated a $215 profit should I decide to buy it back, which would make for a 27 percent profit off of the 780 dollars worth of buying power it took to occupy this particular options trade. Not bad, wouldn’t you say?

Anyways, I’ll be sure to hold onto it until expiration as I’m currently pretty short on the SPY, but even if I did close this out, I’d have already made a killing for a single trade. That’s why this bear call spread gets the trade of the week status.

Don’t know what a bear call spread is? Click here for an explanation.

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