EWZ Analysis

iShares MSCI Brazil Index (EWZ)

Update 5/22/2017: EWZ fell slightly after I entered this short-term position. Implied volatility held steady, and time decay brought the position into profitability. I exited as expiration approached, at 5.9% of maximum potential profit.

Shares showed a net declined of 2.3% over three days, or a -275% annual rate. Tye options position produced a +6.3% yield on debit for a +760.42% annual rate.

EWZ is showing high implied volatility relative to both its annual range and its most recent movement.

I shall use the series of monthly options that trade for the last time seven days hence, on May 26.

Implied volatility stands at 45%, which is 3.7 times the VIX, a measure of the volatility of the S&P 500 index.

EWZ’s IV stands in the 79th percentile of its annual range and the 75th percentile of its most recent broad movement.

The price used for analysis was $35.07.

Premium: $1.70 Expire OTM  
EWZ-iron fly Strike Odds Delta
Long 38.00 90.5% 11
Break-even 36.20
Short 34.50 52.6% 50
Short 34.50 47.1% 50
Break-even 33.20
Long 31.50 89.3% 9

The risk/reward ratio is 1.1:1.The premium is 52% of the width of the position’s wings.

Decision for My Account

I was unable to get a fill at my first attempt in constructing a position. I reworked it and have entered an order on EWZ as described above. The fund at the time of entry was priced at $34.96.

By Tim Bovee, Portland, Oregon, May 19, 2017

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