EWZ Analysis

iShares MSCI Brazil Index (EWZ)

Update 6/2/2017: I have exited the second round of my EWZ, wrapping the series. Here are the results for the series as a whole:

Shares rose by 1.0% over 10 days, or a +38% annual rate. The options position produced a 14.9% yield on debit for a +545% annual rate.

I considered rolling forward for yet another around, but implied volatility as dropped below the 50th percentile of both the annual range and the most recent movement. Even so, IV is 3.5 times the VIX, which is a high level.

If conditions improve, I shall return to EWZ, starting a new series.


Update 5/26/2017: I exited the May 23 position EWZ for a small profit, a week before the options, and re-established the position with adjusted strike prices and a June 16 expiration. In rolling the position forward, I shall treat the entire series as a single trade for the purpose of calculating results.

In the May 23-26 leg, shares rose by 2.98% over three days, or a +363% annual rate. The options position produced a +2.4% yield on debit for a +293% annual rate.

The new position is structured like this:

Premium: $2.40 Expire OTM  
EWZ-iron fly Strike Odds Delta
       
Long 40.50 94.1% 7
Break-even 37.90    
Short 35.50 50.9 53
Puts      
Short 35.50 49.0% 47
Break-even 32.90    
Long 30.50 88.8% 9

The premium is 48% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

The stock at the time of entry was priced at $35.60.


EWZ has sufficiently high implied volatility to warrant consideration as a volatility play.

I shall use the series of weekly options that trade for the last time 10 days hence, on June 2.

Implied volatility stands at 41%, which is 3.8 times the VIX, a measure of the volatility of the S&P 500 index.

EWZ’s IV stands in the 65th percentile of its annual range and the 64th percentile of its most recent broad movement.

The price used for analysis was $34.60.

Premium: $1.70 Expire OTM  
EWZ-iron fly Strike Odds Delta
Long 38.00 93.3% 8
Break-even 36.20
Short 34.50 51.1% 52
Puts
Short 34.50 48.9% 48
Break-even 32.70
Long 31.00 89.5% 9

The premium is 49% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

Decision for My Account

I have entered an order on EWZ as described above. The stock at the time of entry was priced at $34.53.

By Tim Bovee, Portland, Oregon, May 23, 2017

3 thoughts on “EWZ Analysis

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