Sample trade -S&P 500/bullish

Here is an example of a trade with a 'defined' risk. If you expect the S&P 500 to rally in the next week or two, this trade would be profitable. If you were wrong, your loss would be 'capped' at the price you paid, no matter how low the market goes.

Why would it rally? The S&P is now at the lows seen in November, a potential level of support for prices. A low risk way to enter a trade would be to use 'options', and buy a 'Call spread' on the SSO (S&P leveraged ETF).

The example below shows the April $16/20 call spread at a purchase price of $1.50 (this spread is currently trading at $1.78, but I expect the market to pull back a little more before it rallies, so if you put this order in ahead of time, chances are good that you will get it for $1.50, maybe even $1.30 if it goes low enough).

Maximum profit on this trade is $2.50 per contract (or $250); maximum loss is what you paid for it $1.50 (or ($150). Of course if it goes in your favor, you could close it early e.g. at a $3.00 price and make a nice 100% profit from $1.50 > $3.00 (instead of waiting for the full profit at a $4 price). Similarly, if it goes against you, you could close it early to avoid the maximum loss of $1.50 per contract.

Here is what it looks like on a chart (courtesy ThinkorSwim):

The chart shows a potential 100% profit with SSO trading just above $21 on March 21st.

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All trades are for demonstration and educational purposes only. No recommendations are being made, nor is any advice being given.