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Mike Khouw's SPDR S&P 500 ETF Trust Trade

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CNBC Options Action's Mike Khouw spoke on the show about a bearish trading strategy in SPDR S&P 500 ETF Trust (NYSE: SPY).

He thinks that the best way to protect a portfolio in the current trading environment would be a purchase of a calendar put spread in SPDR S&P 500 ETF Trust.

Specifically, Khouw wants to sell the December 180 put for $3.70 and buy the March 180 put for $6.70. This trade would cost him $3 and if SPDR S&P 500 ETF Trust trades below 177 at the March expiration it would be profitable. The set up also assumes that SPDR S&P 500 ETF Trust won't lose more than 5 percent at the December expiration.

Khouw created the strategy based on Carter Worth's analysis. Worth said that SPDR S&P 500 ETF Trust is close to its 33 percent retracement and he thinks that this price level would be a resistance and that the ETF will trade lower. He also showed statistics of the market corrections and he concluded that the current correction of approximately 9 percent could continue because the average correction was around 12 percent.

 

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Posted-In: Carter Worth CNBC Mike Khouw Options ActionMedia