Bought +3 STRANGLE XLF 100 JUN 09 13/12 CALL/PUT @.69

I bought three 13/12 June strangles as XLF is hanging around $12.50 today. My reasons are as follows:

1. S&P500 is approaching 950 on a giant gap up today. This is an important pivot on many levels. So we either turn back down or break upward from here. Either way, we’re at the top of a month-long trading range from beginning of May. See Figure 1.
2. XLF is testing a trendline from May 2008. This line has been well respected for a year. So a significant move is expected. See Figure 2.
3. XLF is now at the neckline of an inverse-head-and-shoulder formation and in the middle of a big trading zone, from around $9.15 to $15.33. Again, we either break up or not with a big move. See Figure 2 again.

Risk: $0.69

Stop: if the total premium falls below $0.50

Target: $15.33 to the upside and $9.15 to the downside.

Reward / Risk = 2.83 / 0.69 = 4.1 (upside) AND 3.35 / 0.69 = 4.86 (downside). Both are less than 5.0, but that’s because I’m calculating using the maximum potential loss. The R/R would be above 5.0 if I use my exit stop of $0.50 on the premium.

S&P 500 ETF

Financial Sector SPDR ETF

Financial Sector SPDR ETF

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