Hi Shoppers,

The market is looking a bit toppy to me, it could use a bit of a breather.

I guess you can say I am piling on our bond guru Bill Griffo … 

And I like a spread very similar to what he recommended. 

AND I have the Japanese candlesticks to back it up!

Check out these two charts of the SPY and the SPX, which are basically the same product.

The two green candles that the arrows are pointing to are called the Hanging Man candle formation.

This candle is formed at the top of an uptrend and happens when the stock has traded lower, signaling sellers have come in, but closes at or near the opening price.

The Hanging Man candle has a longer lower shadow and a very small body.

Generally you want to get a confirmation that the trend is going to change.

The fact that yesterday’s candle shows a lower close is my confirmation.

I like buying the SPY Feb5 381/371 put spread paying $1.65.

I am buying the 381 puts with an implied volatility of 15.93 and selling the 371 puts with an implied vol of 21.22 = buying low and selling high.

It’s a nice, low price entry price to take advantage of that down swing.

I will stop my loss on this spread if it trades below $.95.

For Review

My TWTR put spread I sold at $2.36 is still looking good trading $1.40. Don’t forget we need to buy it back before earnings on Feb 9.

Also, my SLV trade is up slightly but we have 53 days left and we only spent $.50, I am sticking with it.

Keep your eye on that GME, it will be interesting.

Thanks for reading … See You Next Tuesday!

Licia Leslie

DISCLAIMER: FOR EDUCATIONAL AND INFORMATION PURPOSES ONLY; NOT INVESTMENT ADVICE. The materials presented from Option Pit LLC are for your informational and educational purposes only. Neither Option Pit LLC nor its employees offer investment, legal or tax advice of any kind, and the analysis displayed with various tools does not constitute investment, legal or tax advice and should not be interpreted as such. Using the data and analysis contained in the materials for reasons other than the informational and educational purposes intended is at the user’s own risk. 

DISCLAIMER: OPTION PIT LLC IS NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER. Option Pit LLC is not responsible for any losses that may occur from transactions effected based upon information or analysis contained in the presented materials. Specific trading ideas or strategies discussed in the presentations or materials are entirely illustrative and do not constitute the solicitation of a transaction (or transactions) or a recommendation to execute a particular transaction or implement a particular trading strategy.

DISCLAIMER: TRADE AT YOUR OWN RISK; TRADING INVOLVES RISK OF LOSS; SEEK PROFESSIONAL ADVICE. To the extent that you make use of the concepts with the presentation material, you are solely responsible for the applicable trading or investment decision. Trading activity, including options transactions, can involve the risk of loss, so use caution when entering any option transaction. You trade at your own risk, and it is recommended you consult with a financial advisor for investment, legal or tax advice relating to options transactions.