The Bottom Line:
- Scott Gillum introduces a defensive trade setup for SPY using Fibonacci retracement and moving averages.
- The trade involves a non-margined put diagonal spread, buying August 530 puts and selling July 528 puts.
- This setup aims to profit from potential pullbacks while managing risks with positive Theta and negative Delta.
- Market volatility plays a crucial role in enhancing returns, with increased nervousness improving the strategy’s effectiveness.
- The video also includes an invitation to join Scott Gillum’s live trading sessions for real-time trading guidance.
Introduction to Defensive SPY Put Diagonal Trade
Trade Setup Details
In the trade setup, I’m going to look at the July 19 monthly options for my short side. I want to give it some time to come back down so I’m looking at the 528 level there’s 530 at the 21 EMA, so a little bit below that gives me the 618 at the 528 level.
Defensive Trading Strategy Approach
If we go through that, then we’ve got things going our way, but I want to step aside on that 28 by adding… Let’s go to the next trade. I want to add this 530 out in August, so the 530 comes into play once again right at those low points that we had for our big move up.
Maximizing Returns with Implied Volatility
There is another play on this trade and that comes from not having a, as we have here P we have negative Delta making money for us on a drop. We’ve got positive Theta so if nothing happens day after day, we still increase our valuation. But the one thing that we haven’t talked about is this implied volatility. I’m going to go back to the charts; volatility right now sitting here at the 12 level. Any increase in the nervousness of this market going from 12 to 13 to 14 would improve our return drastically as the SPY and the rest of the market would accelerate the downside move.
Setting Up the Trade with Fibonacci Retracement and Moving Averages
Setting Up the Trade with Fibonacci Retracement and Moving Averages
I’ve got two Fibonacci levels for you to consider. One is from the April low to the high reached yesterday, indicating a consolidation area between the 38 and 23 fib levels around 532.
Tightening up the Fibonacci from the flush low on May 31st to the rise until a few days ago, we now have a swing high and low to analyze. The pullback to the 236 level gives us key points at 537 on the SPY.
To establish our protective portfolio trade, I’m targeting the 537 level with considerations of the 8 EMA at 537 and the lagging 21 EMA at 530.
Considering the trade setup, looking at the July 19 monthly options for the short side around 528, I aim to add another position by purchasing the 530 August options. This combination forms a non-margined put diagonal trade allowing for potential adjustments based on market movements.
Through this strategy, we aim to leverage negative Delta for profit on a downward move along with positive Theta for incremental gains in case of stagnation. Additionally, potential increases in implied volatility can significantly enhance returns as the market accelerates downward movements.
Understanding the Non-Margined Put Diagonal Spread Strategy
Exploring the Concept of Non-Margined Put Diagonal Spread Strategy
I’ve got two Fibonacci levels for you to consider. One is from the April low to the high reached yesterday, indicating a consolidation area between the 38 and 23 fib levels around 532.
Tightening up the Fibonacci from the flush low on May 31st to the rise until a few days ago, we now have a swing high and low to analyze. The pullback to the 236 level gives us key points at 537 on the SPY.
To establish our protective portfolio trade, I’m targeting the 537 level with considerations of the 8 EMA at 537 and the lagging 21 EMA at 530.
Implementing Strategy with July and August Options
Considering the trade setup, looking at the July 19 monthly options for the short side around 528, I aim to add another position by purchasing the 530 August options. This combination forms a non-margined put diagonal trade allowing for potential adjustments based on market movements.
Through this strategy, we aim to leverage negative Delta for profit on a downward move along with positive Theta for incremental gains in case of stagnation.
Capitalizing on Implied Volatility for Enhanced Returns
There is another play on this trade and that comes from not having a, as we have here P we have negative Delta making money for us on a drop. We’ve got positive Theta so if nothing happens day after day, we still increase our valuation. But the one thing that we haven’t talked about is this implied volatility. Any increase in the nervousness of this market going from 12 to 13 to 14 would improve our return drastically as the SPY and the rest of the market would accelerate the downside move.
The Role of Market Volatility in Enhancing Strategy Returns
Market Volatility’s Impact on Strategy Returns
Any increase in the market’s volatility can significantly enhance our returns as it accelerates downward movements. This heightened volatility could drive the SPY and other market components towards downside momentum. This potential movement is crucial for the strategy, as it may lead to a substantial improvement in returns.
Leveraging Implied Volatility for Profit
Implied volatility plays a key role in this defensive trading strategy. A rise in volatility levels from the current 12 to 13 or 14 can dramatically boost our returns. As the overall market experiences increased nervousness, the value of our long call option would increase while the short call’s value remains relatively stable due to time erosion. This dynamic situation has the potential to achieve a significant return on investment ratio.
Enhancing Strategy Returns Through Market Volatility
In this approach, we capitalize on the possible increase in implied volatility to enhance our returns. By adapting our strategy to navigate through potential volatility changes, we aim to maximize profitability based on the evolving market conditions. The interplay between market volatility and our strategic setup is crucial for optimizing returns and managing risks effectively.
Join Scott Gillum’s Live Trading Sessions for Real-Time Guidance
In the live trading sessions with Scott Gillum, you can observe a detailed trade setup aimed at adjusting to market movements and maximizing returns through a defensive play using SPY put diagonal spreads. By analyzing Fibonacci retracement levels and moving averages, Scott highlights key levels like 528 and 530 for potential trade entries in July and August, respectively. This non-margined put diagonal strategy leverages negative Delta for profit on downward moves, positive Theta for incremental gains during market pauses, and the potential enhancement of returns through rising implied volatility levels, which could significantly impact valuation dynamics. The versatility of this approach allows for adjustments based on changing market conditions while aiming for a high return on investment ratio.
