Originally published July 22, 2026 on The Trading Journal (tredey.com). Archived here as part of the Dependability research record.
Signal Basis
Regime: Bull. Event: FOMC (Jul 28–29), one week out — outside the five-day event window. 20d return +0.5%, breadth 75%, IV-rank 42.5, VIX 17.36 mid-range. The setup reads as a mid-vol continuation; the trade is a credit spread that gets paid to wait while the bull thesis either re-asserts itself or fails.
The Trade
Structure: Bull put spread on SPX. Sell the SPX $7,235 put / buy the $7,225 put, expiring Friday morning, Aug 21, 2026 (AM-settled standard monthly SPX).
| P&L field | Value |
|---|---|
| Net credit | $2.40 per share, $240 per contract |
| Max profit | $240 (full credit retained if SPX closes ≥ $7,235 at settlement) |
| Max loss | $760 (if SPX closes at or below $7,225) |
| Breakeven | $7,232.60 — SPX can fall 277 points (3.7%) before the position starts losing money |
| Probability of profit | ~80% based on the 0.20-delta short strike |
| Reward-to-risk | 1 : 0.32 |
Why this structure. A bull put spread on SPX collects premium up front, caps the downside, and lets time decay do the work while the underlying trend holds. The 30-day expiry is far enough out that theta bleed is moderate rather than aggressive, and the short strike at $7,235 sits 3.7% below spot — comfortably inside the range the bull regime has defended for the past three weeks. SPX is cash-settled European-style; the short put carries no early-assignment risk on ex-dividend dates or in fast-market scenarios — the institutional default for index-level short-premium structures.
Live chain (yfinance, Jul 22 at 10:48 ET): short $7,235 put mid $50.85 (bid $50.60, ask $51.10, IV 17.5%); long $7,225 put mid $48.45 (bid $48.10, ask $48.80, IV 17.5%). Total live spread credit: $2.40 per share. BSM flat-IV estimate using VIX 17.36% produced $2.08 per share — within 13% of the live mid; live values are used throughout.
Net Greeks (BS at spot): delta −0.04 (mildly bullish), theta +$10/day (net positive — selling time), vega −0.04 per vol point (a 1-point VIX drop from 17.36 lifts the mark ~$4; a 1-point rise costs ~$4).
Expected Move (1 Standard Deviation)
Using VIX 17.36 as the IV estimate, the 1σ expected moves for SPX:
| Window | Points | Percent |
|---|---|---|
| 1 day | ±68 | ±0.91% |
| 1 week (5 sessions) | ±153 | ±2.03% |
| 30 days (to Aug 21) | ±374 | ±4.98% |
| 60 days | ±539 | ±7.18% |
| 90 days | ±647 | ±8.62% |
| 1 year (252 sessions) | ±1,083 | ±14.42% |
The 30-day 1σ move is ±374 points. The short strike at $7,235 is 274 points below spot — roughly 0.73σ below current. For a short strike at 0.20 delta, this is the canonical "collect premium inside the trend" placement: the strike sits inside one standard deviation of the expected move, implying ~80% probability of finishing above the strike at expiry.
Market Context
| Driver | Reading |
|---|---|
| SPX spot | $7,509.20 (Tuesday close) |
| SPX 5d return | −0.47% |
| SPX 20d return | +0.52% |
| SPY vs MA50 | $748.28 vs $743.81 (above) |
| SPY vs MA200 | $748.28 vs $694.27 (well above) |
| VIX | 17.36 |
| VIX3M | 20.54 |
| Term ratio (VIX / VIX3M) | 0.844 (mild contango) |
| IV-rank proxy (SPY) | 42.5 |
| IV-rank proxy (QQQ) | 65.9 |
| Breadth — % above 50d MA | 75% |
| 2s10s Treasury spread | 0 bps (flat, not inverted) |
| DXY (UUP proxy) | $28.48 (+0.3% 5d, +0.4% 20d) |
| Copper/gold ratio | 0.00158 (neutral) |
| FOMC | Jul 28–29 (6 calendar days) |
The bull regime is intact on every metric that matters: SPY above both MAs, breadth healthy at 75%, positive 20-day return, and the VIX term structure in contango rather than backwardation. None of the macro caution triggers are present. The single notable cross-current is QQQ's IV-rank at 65.9 vs SPY's 42.5 — reflecting tech-led rotation pressure visible in XLK's −5.9% 20-day return, but it does not yet threaten the broader bull thesis.
Sector read: XLE +8.21% 20d (energy bid extends); XLV +6.79% (defensive leadership); XLK −5.92% (rate-sensitivity pain — worst sector). Tech's decline against a flat SPY tape is the classic late-cycle rotation signature; leadership narrowing supports a credit spread over a long-vol expression.
Alternatives Considered
- Iron condor on SPX. No range confirmation — breadth is healthy, not narrowing.
- Bear call vertical on SPX. No bear case — SPY above both MAs, breadth intact.
- Bull call vertical on SPX. Mid-vol favors credit over debit.
- Put spread insurance (tail hedge). VIX 17.36 is mid-range, not complacency; no cheap tail to buy.
- SPY instead of SPX. SPY is American-style; short put carries early-assignment risk.
- XSP (1/10 of SPX). XSP chain not returned on live pull; SPX stays executable.
- Sep 18 monthly expiry. Longer adds gamma risk; target is a one-month window.
- Tighter 5-wide spread. $370 max loss, $120 max profit — worse reward-to-risk.
Risks to the Trade
- Sharp drawdown into FOMC. The Jul 28–29 meeting falls inside the trade window. A hawkish surprise could put the short strike at risk; full $760 loss requires a sustained multi-day move through $7,225.
- Vol expansion. Mildly short vega — a VIX spike from 17.36 to 25 would mark the position down ~$30 per contract on the vol move alone, offset partially by ~$10/day theta.
- Regime break. A confirmed bear regime (SPY below MA200 at $694.27 with breadth below 40%) invalidates the thesis; close at the market rather than hold.
- Chop with elevated vol. Not the loss case — only a slower-payoff case for a credit spread.
- AM-settlement timing risk. Last trade day for the Aug 21 expiry is Thursday, August 20; overnight news from Thursday 4:00 PM ET through Friday 9:30 AM ET lands in the settlement print. Consider closing by Wednesday August 19.
Position Management
| Trigger | Action |
|---|---|
| Profit-take at 50% | Close at $1.20 debit (50% captured) |
| Stop-loss at 2× credit | Close if debit rises to $4.80/share ($480 to close) |
| Delta stop | Close if short put delta rises above 0.35 |
| Time stop at 7 days remaining | Close on Aug 14 unless stops hit |
| FOMC adjustment (Jul 28–29) | Hold through FOMC unless delta stop triggers |
| Roll down-and-out | Roll down 5 and out to Sep 18 if short strike tested |
What to Watch
- Breadth reading. 75% above 50d MA today. A close below 60% is the first warning; below 40% is the regime-break threshold.
- VIX term structure. Currently 0.844 (mild contango). A flip into backwardation (ratio >1.05) signals stress.
- XLK relative to MA200. QQQ at $708.97 vs MA200 at $640.55 — a break below $680 would invalidate the bull-put-spread thesis.
- FOMC setup news flow. The Jul 28–29 meeting enters the five-day event window Monday July 27.
- 2s10s Treasury spread. Flat at 0 bps; inversion would layer macro caution on top of the leadership rotation.
Disclosures
Not investment advice. Educational content only. Options trading involves substantial risk of loss, including the full amount of premium paid for long-option structures or the full width of spreads for short-option structures. Past performance is not indicative of future results.
Live chain source: yfinance SPX Aug 21 chain at 10:48 ET on July 22, 2026 — short put 7235 mid $50.85 (bid $50.60, ask $51.10, IV 17.5%), long put 7225 mid $48.45 (bid $48.10, ask $48.80, IV 17.5%). Strike selection driven by the live chain; build the structure in your broker and confirm premiums before placing any orders.
Settlement note: Standard monthly SPX options are AM-settled — they expire on the Friday opening print, not the close. The last trade day for the Aug 21 expiry is Thursday, August 20, 2026.
Model the structure on OptionsStrat (affiliate link) to see the full risk curve, including vega exposure and time-decay curves. Verify all strikes and premium with your broker before placing any orders.