Bought More SPY Calls & Sold ETN Naked Put

Yesterday I saw the S&P 500 index ETF, SPY, was down since I sold the last couple of calls I had and it was on its trend line of higher lows.  This would typically make it an ideal time to buy calls, like a couple of weeks ago when I did it and made a quick profit.  The difference in what I saw yesterday was that SPY had fallen below its 50 day moving average twice in a row on Tuesday and Wednesday.  I opted to sit back and watch a little more until I thought the risk was reduced.

Today the markets took off pretty fast at the open and I was too busy working to make a trade.  I came in before lunch and charted SPY.  The chart showed that the trend line mentioned above of higher lows held and SPY was moving north again and had made it above the 50 day and also the 10 day moving averages.  I entered a limit order and while SPY was trading at $139.40 I bought three SPY June 142 calls (SFBFL) and paid $255.24 with commissions.

I said at the beginning that I waited for SPY to move up to reduce my risk.  That’s a mixed risk answer.  I’m actually taking on more risk now because the cost of the options is more now than yesterday, but I feel the risk of further declines in the near term has come down.  If SPY continued its fall below the 50 day moving average, it could keep going faster, but by holding support and opening strong it will most likely have a stronger run for a few days.

This week’s Barron’s had a bullish article on Eaton Corp (ETN).  Their logic made sense to me so I came back to chart it.  ETN was trading high within its trading channel this weekend and a few bucks above its 10 day moving average and well above the 20 and 50 day moving averages.  I expected a pull back closer to at least the 10 day moving average and set my limit to hit for a dip to that range.  On Monday ETN started off bouncing higher to start and has returned to the mean since then as the 10 day moving average has rising to meet it in the middle.  It found support yesterday and opened higher this morning so I lowered my limit and while ETN was trading at $94.63 I sold one ETN July 90 naked put (ETNSR) and we received $219.25 after commissions. 

Although I’m bullish in the short term, as proven by my SPY call buy above, I’m still worried of what damage the high oil prices will do to earnings in the next round and fear we’ll get another good sized dip before the summer is over.  That’s what kept me from selling closer to at the money for ETN.  I have nearly a $7 cushion if ETN does fall.  That’ll help me sleep better.  By that time, the 50 day moving average will be higher and should offer good support and could keep my position profitable.