Update: S&P Put Spread Insight From 12/07/24
02-08-2024
On 12 July 2024 we published a trade insight that considered what might happen to the S&P 500 Index if tech earnings disappointed, and how using a put spread to protect existing exposure or profit from any market pull-back might be worth considering.
On that date the S&P at the time of writing was trading at 5627.94. Since then it has fallen 5.55% as the AI pump that inflated the S&P’s ‘magnificent 7’ seems to have run out of air, and the put spread we considered has risen by 131.25%.
Chart 1: S&P year-to-date
If you think there is a possibility that the S&P, which is still up 13% year to date, may also suffer further falls due to the rapidly shifting geopolitical and macroeconomic environment, put spreads remain a useful tool for both tactical trading and portfolio protection.
Instead of considering different levels for a put spread trade insight based on today’s S&P 500 level, we have updated the original insight with today’s values to illustrate both the P&L to date and what the risk/reward profile of the same put spread looks like going forward.
Put Spread
Original Trade Idea
Put Spread
S&P500 Cash Price = 5627.94 (as of 12/07/2024 @ time of writing)
Total consideration of $2,400 (excl. fees + commissions)
A retracement of ~10% to the 5000 level by 20-Dec-2024 expiry would:
- Yield a 370% return on your initial investment, valuing the put spread at $20,000 (5400 – 5000 x 50)
- Yield a maximum profit of $17,600 ($20,000 – $2,400) (excl. fees + commissions)
Maximum loss $2,400 (excl. fees + commissions)
Defined risk profile, maximum loss is equal to the net option premium paid + commissions and fees.
Put spreads allow you to reduce the initial outlay in exchange for a capped maximum profit.
Put Spread
Trade Idea Update
Put Spread
S&P500 Cash Price = 5315.1 as of 02/08/2024 the S&P has fallen 312.84 points a fall of 5.55%
Total consideration of $5,500 (excl. fees + commissions)
A retracement of ~6% to the 5000 level by 20-Dec-2024 expiry would
- Yield a 263.64% return on your initial investment, valuing the put spread at $20,000 (5400 – 5000 x 50)
- Yield a maximum profit of $14,500 ($20,000 – $5,500) (excl. fees + commissions)
Maximum loss $5,500 (excl. fees + commissions)
Defined risk profile, maximum loss is equal to the net option premium paid + commissions and fees.
The contents of this article are for general information purposes only. Nothing in this article constitutes advice to any person and any investments and/or investment services referred to therein may not be suitable for all investors. If you’re unsure whether any investment is right for you, you should contact an independent financial adviser. For more information, please see Terms and Conditions | OptionsDesk.
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