Bear Call Trades on SPY

I have this saying when it comes to technical analysis that goes like this: “What has a better chance of happening”? What I mean is, based on support and/or resistance, what does the underlying have a better chance of doing? Now let’s be clear, there is not always a definitive answer to that question. But many times there is, and an option trader can take advantage of those odds. Let’s start with support and resistance.

Support and Resistance

I often say that support and resistance (horizontal, diagonal, moving averages, etc.) have about a 70% chance or better of keeping the underlying from moving through that level. This is not scientific but rather based on my experience of looking at charts for well over two decades. Knowing that percentage and believing it gives you an edge. Let’s look at some recent examples from MTM’s Group Coaching class with the S&P 500 ETF (SPY).

SPY Example No. 1

Below is an hourly chart of the SPY from September.

Notice the 2 arrows by the No. 1 area. There was some potential horizontal resistance just over the $446 level and some potential resistance from the 50-day moving average in that same area. In Group Coaching class, we sold a bear call spread with 2 days to go till expiration just above that level counting on those potential resistance levels to hold, which they did. On Friday that week, the ETF gapped above that level, but expiration had already occurred for our trade idea.

Spy Example No. 2

For area No. 2, we had potential resistance from another horizontal level (and the 50-day MA) and from the 200-day moving average. In class I pointed out that the ETF moved higher that same day (Monday), but the 200-day acted as resistance and pushed the ETF lower again. We sold a bear call on Monday for the next day’s expiration and were once again successful.

SPY Example No. 3

If you look at area No. 3, you can see prior support has become potential resistance around the $443 level. Guess what I was thinking? If you guessed a bear call, you are correct. At the time, however, the Federal Reserve was expected to release an interest rate update the following day. Such volatility event tend to skew the percentages, and sometimes the best thing to do is to avoid trading over such an event. But the setup was there, and it is good practice to recognize these opportunities when they present themselves.


Finding odds on your side is the key to making profitable trades. Sometimes we look too hard when the opportunity is right in front of us, as we saw in the above examples. The key is to find it and then believe it.

John Kmiecik, Market Taker Mentoring

Trader Education