Intraday market notes & observations – April 20

1:55pm ET: Take advantage of low volatility to protect your portfolio

Tags: bear-put credit spreads, SPY, portfolio protection

As of this writing, the Dow Transports ($DTX), a leading indication of short-term market direction, is now trading in the red. It needs to stay above 520 for any hope of rally continuation.

Since the VIX is at its lowest level in years, now would be an excellent time to buy long-term put protection for your portfolio. One possible options play would be to buy the 12Jan 133 Put for $9.40. You can decrease your purchase price by selling a lower strike call against your long put.

The SPY has support at $125. (See chart below.) Currently, the 12Jan 125 put is selling for $6.40, so if you put on this bear-put credit spread, it would end up costing you only $3 for $8 worth of downside protection. (Below $125 you won’t be protected.) Should the SPY fall to $125 between now and the third week in January, your maximum gain would be $5, giving a reward to risk ratio of 5/3, or 1.67.

1:20pm ET: intraday support/resistance
SPX 1324/1334
DTX 523.5/531.5
DJIA 12350/12500
Nasdaq 2786/2804
OEX 591/595
VIX 14.3/15.7
Trin range: 0.8 – 1.2 (neutral)
Average VWAPs: +41/-71 (mildly bearish (as of this writing))

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