Potential SPY Trade

With the year coming to an end, here's a potential trade idea for SPY with limited downside risk.

SPY closed last week at $604.21. To setup a trade for next year that requires little managment, consider a collar option by buying the Dec 19 2025 605 put for $30.37 and selling the Dec 19 2025 665 call for $17.46. These options result in a net debit of $12.91 (30.37-17.46). Note that these are approximates based on last week's close and can certainly change at the open.

The max upside gain for this trade would occur if the shares get called away at the call strike minus the debit paid for the collar, $665 - $604.21 - $12.91 = $47.88 or $4,788 which is about a 7.75% return.

The downside risk would occur if the shares are sold at the put strike plus the debit paid for the collar option, $605 - $604.21 - $12.91 = -$12.12 or -$1,212 which is about a 2% drawdown.

None of the calculations include the bonus from the dividends on SPY which is currently yielding a little over 1%.

Keep in mind that this trade assumes no adjustments made throughout the year. There certainly could be an opportunity to adjust the call strike depending on the movement of SPY and also to sell out of the money call spreads (or put spreads) to further lower the cost basis.