SP 500 FUTURES and One Simple ETF (SDS) Covered Call


April 12, 2021

As part of this post, we’ll take a deeper look at the SP 500 Futures Renko chart, technical analysis, and a simple covered call strategy. For additional information on technical analysis using Renko charts, please see this post, which describes the techniques in further depth.

Renko Chart Technical Analysis

Below is a Renko chart of the S&P 500 Futures. The relative strength index (RSI) is 94, and the price is 4121. All of the signs point to a correction occurring soon after. However, the risk remains in terms of timing, as we do not know when the SP 500 Futures will correct in the near term, given the strong upward momentum and the lack of any visible barriers to the upside.

SP 500 Futures Daily Renko chart and RSI

Using a fixed Renko box size is the best way to get started trading Renko charts. Thus, whether you examine the charts today or one week from now, the trend lines and horizontal support/resistance levels that you have drawn will remain consistent regardless of when you examine them.

The time frame from which the Renko charts are generated is also important. Take, for example, a 1-minute base chart, which is the closest you can get to a tick chart, or a more general time frame of the base chart, such as a 5, 15-minute, or 1-hour time frame.

The timeframe of the Renko chart should be chosen in accordance with your trading style and risk appetite. As a general rule of thumb, you can use multiple timeframe charts to help you perform technical analysis. This method assists you in gaining perspective on both the short-term and long-term time horizons.

For more information on technical analysis using Renko charts, please see this blog post, which goes into greater detail about the techniques used in the analysis.

Covered Call Strategy

Based on technical analysis and probability calculations, I opened a covered call position today. Based on the fact that the SP 500 Futures have gained more than 150 points since the previous all-time high without a retracement and the RSI is currently in overbought territory, I purchased the stock symbol SDS at $10 and sold the June 18 $10.00 Call at 0.55. The EFT SDS is a bearish strategy. It increases in value as the S&P 500 declines. During a single trading day, the SDS ProShares ETF seeks to generate returns that are 2x the return of its underlying benchmark (target). My starting point for this purchase would be $9.45. In this case, my maximum profit would be $0.55, corresponding to a 3% decline in the S&P 500.

See this post for more information on how to use the covered call strategy to generate additional income for your portfolio. It goes into greater detail about the techniques used in this strategy. Covered calls can be in the money (ITM), at the money (ATM), or out of the money (OTM). The post goes into great detail about when and how to do so.

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