Revealed: How to Profit From My Triple Play Options Strategy

Revealed: How to Profit From My Triple Play Options Strategy

Posted On April 1, 2022 1:21 pm

After a historic 10-day run, stocks have run into some selling in the past two days, closing out the quarter with the SPDR S&P 500 (SPY); down 6.2% for the YTD.  By contract, Options360 is up 10.1% YTD.  While the service isn’t really benchmarked to anything, it looks for absolute returns, it’s always good to be aware of what type of environment we’re operating so we can assess our relative risk and which strategies are working. 

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One of the trades Options360 has been successfully employing is what I dubbed the SPY triple play.  In it,  we’re leveraging the fact that SPY has options, which expire Monday, Wednesday, and Friday each week.  In other words, we have the potential to take three or make a triple roll each week. This allows us to create a diagonal spread position where the long leg has a relatively short time horizon until expiration. 

On Wednesday, I sent an Options360 members trade alert to initiate such a strategy to establish a bearish position in the SPY. 

Here’s part of the alert that members received: 

“The SPY has climbed some 9.5% over the past 10 trading days and is now overbought. It can stay overbought but it is now into important resistance around the $460 level.

Last week saw the most short-covering, some $20 billion, since March of 2020. I’m skeptical as to whether new buying will emerge. Rather I think this morning’s gap up ostensibly on ‘peace talks’ will bring a round of fresh selling as investors once again focus on rate hikes/inflation.

As you can see, SPY left two prior islands at this level.

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SPY 500 ETF NYSE 2022

Let’s make use of the Monday, Wednesday, and Friday expirations (and we also get a Thursday, March 31st end of quarter expiry) to set up a diagonal with the opportunity for several rolls.”

The initial trade was a purchase of the (4/06) 458 puts and a sale of the (3/29) 455 puts for a $3.00 debit. We then proceeded to roll the short leg three times, including a roll today to the Monday 4/04 expiration, collecting a total of $2.25; this brings the position’s cost, or risk, to just $0.75.  

With the spread fully in the money, it’s currently valued at $3.00 for a potential $2.25 or 75% return on the initial $3.00 risk.  And we still have the opportunity for one last roll on Monday.  

This is the fifth time Options360 has employed the triple-play strategy in the SPY so far this year.  The prior three were bearish and one was bullish, with 72%, 102%, 84%, and 65% returns with an average holding period of just 9 trading days.  

I often say I don’t swing for the fences, but the occasional triple is nice! 

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About author

Steve Smith

Steve Smith have been involved in all facets of the investment industry in a variety of roles ranging from speculator, educator, manager and advisor. This has taken him from the trading floors of Chicago to hedge funds on Wall Street to the world online. From 1987 to 1996, he served as a market maker at the Chicago Board of Options Exchange (CBOE) and Chicago Board of Trade (CBOT). From 1997 to 2007, he was a Senior Columnist and Managing Editor for TheStreet.com, handling their Option Alert and Short Report newsletters. The Option Alert was awarded the MIN “best business newsletter” in 2006. From 2009 to 2013, Smith was a Senior Columnist and Managing Editor for Minyanville’s OptionSmith newsletter, as well as a Risk Manager Consultant for New Vernon Capital LLC. Smith acted as an advisor to build models and option strategies to reduce portfolio exposure and enhance returns for the four main funds. Since 2015, he has worked for Adam Mesh Trading Group. There, he has managed Options360 and Earning 360, been co-leader of Option Academy, and contributed to The Option Specialist website.