SPY Areas of Interest

The S&P's have had a rough two weeks, but this does not necessarily mean that the sky is falling. The current drop is under 3% only. If markets do continue to move lower however, some potential targets are shown in the following weekly chart of SPY.

The 480 level is interesting because it lines up with a 38.2% fibonacci level as well as the January 2022 high. Although it may seem like a big drop, it only amounts to about 8.5%.

One possible trade using collar options is to short 100 shares of SPY and simultaneously buy a call option and sell a put option. For example, you could buy the June 21 530 call and selling the 480 June 21 put option. The risk to reward for this trade is a little better than 1:1. The strikes could be closer together to reduce risk or credit spreads could be also sold.

There are certainly more things to consider when shorting any stock. Margin risk in the account could be an issue. An alternative to playing the downside move (without dealing with actual stock) would be to sell call credit spreads to finance a put option. The simplest approach, however, is to do nothing and let the cash earn interest while the markets figure itself out.