Market finally gave a bearish distribution day yesterday and it made IBD to declare market in correction. As described in my previous post on inter-market relationship, this gave me a signal to initiate a directional trade on SPY with straight puts. This is the first time that I started a bearish position trade since I started the blog.
My stop point is $168 for SPY. The targeted profit is at a price when the Delta of SPY DEC$171p reaches 0.85. If market shows a 2nd confirmation day before the stop is hit, I will exit the trade as well.
I have used a spreadsheet to calculate the potential losses if the stop is hit, and made sure my trade losses will not be more than 3% to 0.75% of my trading accounts. If market continues to drop and break the 50DMA, I can buy additional contracts within my risk tolerance.
Created with ProphetCharts®
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