A Great Options Strategy to Generate Income

NYSE: SPY | SPDR S&P 500 ETF Trust 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!.

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: Option Sensei


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

Most Popular Stories on StockNews.com


Bullish or Bearish Stock Set Up?

The S&P 500 (SPY) record highs sounds pretty darn bullish on the surface. Yet as we dig below the surface there are some curious signals that point more Risk Off. This is especially true as we come into the next Fed meeting after a round of data that points to inflation still being too high...only further delaying the first rate cut. What does this all mean for stocks from here? Steve Reitmeister offers his latest views on the market outlook along with a preview of his top picks to stay on step ahead of the market. Read on for more...

3 Auto Stocks Primed for a June Rally

The auto industry is set for solid growth due to rapid urbanization, the rising popularity of electric vehicles, and increased new vehicle sales. Given this backdrop, it could be wise to buy top auto stocks, such as Isuzu Motors (ISUZY), AB Volvo (VLVLY), and Subaru (FUJHY). Read more...

4 Chip Stocks to Lead the Market in June 2024

The chip industry is poised for sustained growth, fueled by the rising demand for chips and their expanding applications across diverse sectors. Therefore, investors could consider buying fundamentally strong semiconductor stocks such as NXP Semiconductors (NXPI), Qorvo (QRVO), Photronics (PLAB), and Tower Semiconductor (TSEM), which are leading the market in June 2024. Read more...

3 Tech Equities ETFs for Aggressive Investors

Tech ETFs provide exposure to companies at the forefront of technological innovation, significant growth potential, and diversification. Thus, it could be wise to invest in robust tech equities ETFs First Trust NASDAQ Technology Dividend Index Fund (TDIV), Vanguard Communication Services Index Fund ETF (VOX), and VanEck Semiconductor ETF (SMH) for potential gains. Read more…

Stock Alert: Breakout or Fake Out?

The S&P 500 (SPY) officially made new highs this week. Perhaps a reason to celebrate more gains on the way...or perhaps there are signs this move is hollow leading to more downside soon on the way. To help solve this riddle, 44 year investment veteran Steve Reitmeister shares his views along with a trading plan and top picks to stay on the right side of the action. That is what Steve Reitmeister will cover in his latest commentary below. Read on for more...

Read More Stories

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

Event/Date Symbol News Detail Start Price End Price Change POWR Rating
Loading, please wait...
View All SPY News