A Great Options Strategy to Generate Income

NYSE: SPY | SPDR S&P 500 News, Ratings, and Charts

SPY – Working on the assumption of a range-bound or consolidating market, here’s a quick-and-easy options play to generate 35% return over the next 3 days!.

Get Free Updates

Join thousands of investors who get the latest news, insights and top rated picks from StockNews.com!

After a couple of wild weeks and a surge in volatility, it appears the S&P 500 Index and SPY might take a rest and consolidate over the next few days.  Earnings are winding down, trade talks on hold until at least after Labor Day and traders are anxious to take a much-needed end of summer break.

The only known potential market-moving event is the big Central Bankers pow wow in Jackson Hole this Thursday and Friday.  I have a feeling their primary goal will cause as few waves as possible.

Against this backdrop, I think the SPY Trust could stay within a range, specifically, with this box between 282 and 294 levels and consolidate for the remainder of the week.

Working on the assumption of a range-bound or consolidating market, here’s a quick-and-easy options play to generate 35% return over the next 3 days.

The strategy is called an iron condor, which is a combination of selling a put spread and call spread, both for credit.  The position profits if the underlying shares remain within the range until expiration, whereupon all options expire worthlessly and the seller keeps the premium collected.

Here’s the setup and trade I took for my Options360 Service.

ACTION:

-Buy to open 4 contracts Aug (8/23) 281 Puts

-Sell to open 4 contracts Aug (8/23) 284 Puts

-Sell to open 4 contracts Aug (8/23) 296 Calls

-Buy to open 4 contracts Aug (8/23) 298 Calls

For a Net Credit of $0.53  (+/-0.05)

Here is the risk/reward profile for the position:

 You can see as long as SPY remains in the given range, until Friday’s expiration, that the maximum profit will be realized.

This is a great strategy to employ to take advantage of time decay while the market is set to take a breather before the final quarter of insanity kicks in.


SPY shares were trading at $290.74 per share on Tuesday afternoon, down $1.59 (-0.54%). Year-to-date, SPY has gained 17.41%, versus a % rise in the benchmark S&P 500 index during the same period.


About the Author: Steve Smith


Steve has more than 30 years of investment experience with an expertise in options trading. He’s written for TheStreet.com, Minyanville and currently for Option Sensei. Learn more about Steve’s background, along with links to his most recent articles. More...


More Resources for the Stocks in this Article

TickerPOWR RatingIndustry RankRank in Industry
SPYGet RatingGet RatingGet Rating

Get Free Updates

Join thousands of investors who get the latest news, insights and top rated picks from StockNews.com!


Top Stories on StockNews.com

: SWBI | Smith & Wesson Brands Inc. News, Ratings, and Charts

2 Gun Stocks for the Second Half of 2020

Gun sales are at record highs. They could increase even more going into the November elections. Smith & Wesson (SWBI) and Sturm, Ruger & Company are the two best gun stocks.
NYSE: ROL | Rollins, Inc.  News, Ratings, and Charts

Top 5 Large Cap Dividend Stocks for July 7, 2020

The top winners in the large cap US dividend space for Tuesday, July 7, 2020 are ROL, APD, CCJ, AU, and AUY
NYSE: GRUB | GrubHub Inc.  News, Ratings, and Charts

3 Meal Delivery Stocks to Buy Now

Food delivery companies such as GrubHub (GRUB), Waitr Holdings (WTRH), and Blue Apron Holdings (APRN) continue to benefit from the pandemic.
NYSE: FCX | Freeport-McMoRan, Inc.  News, Ratings, and Charts

3 Cheap Commodity Stocks With Major Upside

After a decade of underperformance, commodity stocks are ready to take the baton and outperform stocks. Freeport-McMoran (FCX), Wheaton Precious Metals, and Cabot Oil & Gas (COG) have big potential.
NYSE: HP | Helmerich & Payne, Inc.  News, Ratings, and Charts

3 Energy Stocks to Avoid for the Remainder of 2020

The decline in demand for crude oil and consequent plunge in prices is a severe setback for companies such as Helmerich & Payne (HP), Transocean (RIG), and Northern Oil and Gas (NOG).

Read More Stories


More SPDR S&P 500 (SPY) News View All

Event/DateSymbolNews DetailStart PriceEnd PriceChangePOWR Rating
Loading, please wait...
View All SPY News