SPY Options Signal Bullish Setup at $687 Strike: How to Play the Upcoming Volatility Window

• SPY trades at $684.40, 0.56% above previous close with volume surging to 35.1M shares
• Put/call open interest ratio stands at 1.76, showing heavy bearish positioning below $650-$670
• Block traders bought 6,000 SPY20250930C657 calls and 5,000 SPY20251121C680 calls recently

Here's what you need to know: The options market is painting a fascinating picture. While retail traders are buying puts to hedge a potential dip, institutional players are stacking up calls at key resistance levels. With SPY hovering near its 30-day support band ($683.31-$684.04), we're looking at a high-probability setup where technical indicators and options positioning align for a bullish breakout.

The Quiet Battle at $685-$687

Let's start with the options data that caught my eye. For Friday's expiration (Dec 26), the SPY20251226C685 call has 5,931 open contracts - not the top volume, but its strike price sits right at today's intraday low. Meanwhile next Friday's SPY20260102C687 call dominates with 46,461 open contracts. This isn't random.

The put side tells a different story: 19,786 puts at $659 and 9,937 at $670 show heavy bearish positioning. But here's the twist - the MACD histogram (-0.91) suggests momentum is shifting. When you combine this with block trades showing 6,000 calls bought at the SPY20250930C657 strike, it looks like smart money is positioning for a rebound.

No News, But Plenty to See in the Charts

With no recent company-specific news, the market is reacting purely to technical levels and options positioning. The RSI at 50.39 shows we're at a neutral point, but the 30-day moving average ($676.62) is firmly below current price. This creates a "floor" scenario - if SPY holds above $683.31, the 200-day MA ($622.52) becomes a distant memory.

Your Playbook for Tomorrow

For options traders:

• Bullish Play: Buy SPY20260102C687 calls if SPY breaks above $684.04 (30-day support). Target $690-$695 if the 200-day MA ($622.52) keeps buying pressure alive.
• Bearish Hedge: Buy SPY20260102P650 puts if price drops below $682.68 (intraday low). Watch volume - if it cracks 40M shares, bears gain control.

For stock traders:

• Entry Alert: Consider buying SPY at $683.50 if price pulls back to the lower Bollinger Band ($665.78 is too far).
• Stop Loss: Set at $681.50 (just below 200-day support range).
• Target Zone: First profit-taking at $688 (next Friday's key call strike), then $693 (upper Bollinger Band).

Volatility on the Horizon

The next 72 hours will be critical. With 46,461 open contracts at the $687 strike for Jan 2 expiration, we could see a self-fulfilling prophecy if price tags that level. The block trades also show unusual activity at the SPY20260116P645 put - someone is selling protection at $645, which could become a psychological floor.

My advice? Keep a tight stop while letting winners run. This isn't a high-risk trade if you respect the $681.50 support level. The options market has already priced in much of the downside fear - now it's about execution. And remember, with RSI at 50, we're at a crossroads: this could be the start of a new uptrend or a false breakout. Either way, the options positioning gives us a seat in the front row.