We’re currently experiencing a remarkable phase in the market, highlighted by the S&P 500’s impressive rally of 12% in just 24 trading days. This surge isn’t just a fleeting moment; it’s a significant event, standing out as above the 98th percentile for comparable periods over the past hundred years of market history. We’re truly in a unique trading environment.
SPDR S&P 500 ETF Trust
Adding to this scenario is the VIX Index’s latest close at 12.6, indicating a level of market calmness that’s rare by historical standards. This figure places the index in the bottom 15th percentile since its inception in January 1990, suggesting a market that’s less volatile than usual. Moreover, we find ourselves in a season that traditionally leans towards bullish trends, adding another layer of interest to the current market dynamics.
CBOE Volatility Index
For those considering a bullish stance but wary of entering a market that’s already seen substantial growth, there’s a strategic approach that could be particularly advantageous right now. With options prices currently lower than average, this could be an opportune moment to explore a strategy that leverages these conditions.
A Timely Strategy: Easy Options Trading for Every Investor
In a market that has recently seen a sharp rally, the question becomes: how can you participate in potential gains without the worry of entering too late? The answer might lie in a simple yet effective options trading technique.
Let’s talk about call options. These are a straightforward way to bet on a stock’s rise without the full investment of buying the stock outright. For instance, consider the SPDR S&P 500 Trust (SPY), a popular ETF that tracks the S&P 500. Here is an example of a simple way to benefit from further SPY gains using the current data at the time of writing this.
Strategy Overview:
- Option Type: Buy Call Options
- Underlying Asset: SPDR S&P 500 Trust (SPY)
- Strike Price: $460
- Expiration: January
- Premium Cost: $7.95 per option
Strategy Execution:
Each call option gives you the right, but not the obligation, to buy 100 shares of SPY at $460 per share any time before the expiration date in January. For each call option, you will pay a premium of $7.95 or 1.7% of the cost of the underlying ETF shares. This premium is the maximum amount you risk per option. That’s considerably less than the increase in the SPY share price in just the past two weeks.
Now, for these call options to be profitable, SPY needs to climb above the $460 strike price. While the probability of profit here hovers around 48%, the risk/reward balance is compelling. Your downside risk is limited to the premium spent. This makes it a relatively low-risk way to potentially benefit from further market gains.
This strategy is particularly appealing in the current market environment, where options prices are lower than average. It offers a way to engage with the market’s bullish trends without the significant capital outlay that comes with direct stock purchases.
