Master Simple SPY Spreads to Profit From Market Swings

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We start the week looking at the market from the top down. I’ll walk through the major indexes, economic themes, currencies and internals like advanced-decline lines and breadth. The goal is to set expectations for the week ahead and identify directional bias before the real trading action begins.

This is some timeless trading advice from a few months ago that also works in markets like this — chop, chop, chop. 

The S&P 500 (SPY) has been bouncing between key levels, and I’m trading both sides with spreads to take advantage of the swings.

This week, I’ve set up a bull call spread at $609 by $611 — which means you buy a $609 call and sell a $611 call — and a bear put spread at $591 by $589 — which means you buy a $591 put and sell a $589 put.

These trades give me a $2 credit target with about a 30- to 40-cent debit — setting up a solid risk-reward profile.

Why spreads work in choppy markets

SPY has been stuck in a range, with $600 acting as a key level. It dipped to $600, snapped back up, and now we’re watching to see if it moves toward $610 or drops to $595.

That’s where spreads come in. Instead of making an all-or-nothing bet, I’m structuring trades to profit from either move.

A bull call spread — like my 609 by 611 — profits if SPY moves higher. A bear put spread — like my 591 by 589 — pays if it drops. The key is managing cost while keeping a good reward-to-risk ratio.

How I structure my SPY spreads

I look for a setup that gives me a credit target while keeping my debit small. As I said, I have a $2 credit target with a 30- to 40-cent debit. That means I’m putting up minimal risk for a solid payoff if one of my levels gets hit.

SPY isn’t moving in a straight line, but that’s fine.

We’ve got major earnings — coming up still, like Apple (AAPL) today — plus the PCE inflation report. With this much event risk, volatility should pick up. I expect SPY to hit either 595 or 610 before the week is out. If one of those levels goes, my spreads have a chance to lock in profit.

The bottom line is trading SPY spreads lets me stay flexible. I’m not locked into one direction — I’m playing both sides and letting the market decide which trade works.

With earnings and inflation data coming, there’s a high probability that one of these levels gets tested. If it does, I’m positioned to profit.

I’ll see you in the markets.

Chris Pulver
Chris Pulver Trading

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*This is for informational and educational purposes only. There is inherent risk in trading, so trade at your own risk. 

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