Friday, June 3, 2016

Shorter Term Bearish Skew in SPY

Relative to yesterday's (Thursday's) close in SPY, the scans I have been running of similar past conditions show a low volatility but definite bearish skew to the next few weeks.

There has been about twice as great MAX decline as MAX gain over the next 2 weeks based upon the set-up.

As far as the equity side of trading this market, one scan I ran suggested a paired limit order of 2.5% gain and a stop loss order of 2.5% loss relative to yesterday's closing price would yield about 0.71% profit in SPY over the next 2 weeks on average.  Using a 3x leveraged ETF like SPXU, in theory would return about 2% assuming the whole account was placed in the bearish 3x ETF.  The risk profile definitely justifies that position.

So from yesterday's close of 210.91 in SPY, the limit gain on the SPY short would be at 205.66 and the corresponding stop loss would be 216.25.  Obviously if using a leveraged ETF those numbers would need to be adjusted for the fund and the leverage ratio.

But given the low volatility and forward negative returns in SPY in past instances, making 2% on an account in 2 weeks seems to be a reasonable play to me.


No comments:

Post a Comment