The S&P 500 Dropped Below 6,300 and Is Already Bouncing. Here Are 2 Options Trades to Ride It Higher.
The S&P 500 (SPX) has seen seismic price moves in the last few weeks, trading at nearly 7,000 in Feb. 2026 before dropping below 6,290 at the end of March. Today, however, we’re already seeing some recovery, with the index trading over 6,560 before the Easter break. The question is, is this the precursor to…
The S&P 500 (SPX) has seen seismic price moves in the last few weeks, trading at nearly 7,000 in Feb. 2026 before dropping below 6,290 at the end of March. Today, however, we’re already seeing some recovery, with the index trading over 6,560 before the Easter break.
The question is, is this the precursor to recovery, or is it just another dead cat bounce?
If you’re more of an optimist like me, then buying long calls on SPY might be an efficient way to take advantage of the current environment. In case you’re wondering, yes, one can buy SPX futures calls, but they’re out of reach for most investors. An ETF like SPY solves for that.
A call is a contract that gives you the right but not the obligation to buy an asset at a specified strike price at or within a specified expiration date. When you buy a call, you’re “long” on the trade. Of course, when you buy something, you pay for it; that’s the premium, which represents your maximum loss for the trade.
A long call is typically used when you’re bullish on the stock, ETF, or commodity. How bullish, you may ask? Well, traders usually expect the stock to trade high enough over the strike price so they can at least recoup the premium they paid AND earn profit.
So when buying long calls, investors need to consider where to set their strike price. Traders usually use two metrics for this: moneyness and delta. Let’s start with the former.
Moneyness shows where the current price of an asset sits relative to the option’s strike price. In the case of long calls, if the stock is above the strike price, you’re in the money. If it’s below, you’re out of the money.
Moneyness also tells us the option’s intrinsic value, or simply the difference between the stock trading price and the strike price.
However, option premiums also have extrinsic, or time value. Because options are time-bound contracts, the time left before expiration factors into the option premium. Implied volatility, interest rates, and the price movement of the underlying asset also influence extrinsic value.
Now, with long options, extrinsic value diminishes over time. However, if the stock moves favorably within the contract’s lifetime, you may be looking at profits exceeding those you would have if you just owned or sold the stock the regular way.
The next thing to consider is delta, the options Greek that indicates the relationship between the option’s value or premium and the asset’s price. Or, more precisely, how much an option’s premium is expected to change for every $1 move in the price of the underlying asset.
Long calls have positive delta because the premium benefits the holder when the stock moves up. Therefore, if a long call has a 0.40 delta, the premium is expected to increase by 40 cents for every $1 increase in the underlying asset.
Delta is also used as a rough estimate of the probability that the option expires in the money. So, that same 0.40 delta has around a 40% chance of the stock trading even just one cent above your strike price at expiration. Even though there’s solid mathematical backing for delta numbers, they’re still estimates and subject to change as market conditions evolve.
But then again, having something to use for strike price placements is better than nothing.
So, with that out of the way, let’s look at two SPY long call trades on either end of the moneyness/delta spectrum.
To get started, go to the SPY ETF profile page and click Long Call/Put.
Stay on the Long Call tab and then change the expiration date to your preferred period. I like to buy long calls that expire 30 to 45 days out, so I’ll set this to May 15, which is 43 days away.
Now, let’s start with the out-of-the-money 20-delta trade.
According to the screener, you can buy a 688-strike long call on SPY for $4 per share or $400 per contract. The trade is 5% out of the money and has a delta of around 0.21, which translates to a 21% chance of expiring in the money.
To make money on this trade, the SPY must trade above $692 before or at expiration. This is calculated by adding your per-share premium to your strike price ($4 + $688 = $692). You can buy this option only if you believe that the SPY will move significantly higher within your expiration date.
However, you might be thinking that that’s a tall order, especially when the SPY’s 52-week high is just around $698. It would take something big to happen for a rally like this. In that case, this second trade might be a better choice for you.
According to the screener, you can instead buy a 610-strike long call on SPY for $56.16 per share, or $5,616 per contract. That trade has a 0.80 delta, which means it has roughly a 80% chance of expiring in the money.
In this trade, the SPY must trade above $666.16 before or at expiration for you to make money. Immediately, you’ll see that this scenario is more realistic. However, the cost of better chances of profit is paying 14x more premium at the start.
Of course, you’re not limited to these two trades. Barchart’s Long Call screener gives you several choices along the options chain, with the option to fine-tune your screens by setting personalized filters.
Long calls can be a more capital-efficient way to earn more profit when you’re bullish on a particular asset. However, it comes with leverage that cuts both ways and the possibility of losing your entire premium if the trade goes south. Always remember to maximize your tools, including Barchart’s free and paid features, to increase your chances of success.
On the date of publication, Rick Orford did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com
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