SPDR S&P 500 ETF (SPY)
Update Sept. 20, 2017: I exited the October position entered on Sept. 11 and rolled forward to a similar position expiring Nov. 17, or 58 days from now.
I exited the October position at a 35 cent debit with the share price at $250.01. The debit produced an exit at 36.4% of maximum potential profit; my goal was 50%.\
By my Elliott wave count SPY began a micro-level 4th wave correction, taking a rapid fall after today’s Federal Open Market Committee statement, The wave by the rule of alternation ought to trend sideways, so I chose to roll forward immediately rather than taking time before re-entering. The goal remains to ride SPY up toward the end of the 5th wave that began in August.
Here is the analysis of the new November position:
The premium is 26% of the width of the position’s wings.
The risk/reward ratio is 2.9:1.
I re-entered SPY as described above. The stock at the time of entry was priced at $249.68.
SPY gapped up today in a move that I interpret, using Elliott wave analysis, as being the start of a 5th wave rise from the low set March 27.
The price has just exceeded that of Aug. 8. The amount of additional rise is uncertain; under Elliott wave theory it could be done now, or it could have a very large distance to go. That being the case, I shall use a tight hedge to limit my losses.
I shall use options that trade for the last time 39 days hence, on Oct. 20.
Implied volatility stands at 10%, which is identical to the VIX, a measure of the volatility of the S&P 500 index.
SPY’s IV stands in the 6th percentile of its annual range and the 11th percentile of its most recent broad movement. In other words, it is very, very low, making this an unusual short play. However, looking at the most recent movement differently, I get the 46th percentile. SPY’s volatility has been meandering in a narrow channel for much a year, so it is hard to distinguish clear turning points.
The price used for analysis was $249.14.
I shall build that position as a bull put spread
The premium is 25% of the width of the position’s wings.
The risk/reward ratio is 2.6:1.
Decision for My Account
I have entered an order on SPY as described above. The stock at the time of entry was priced at $249.14.
By Tim Bovee, Portland, Oregon, Sept. 11, 2017
About Elliott wave analysis
Elliott wave analysis tracks patterns in price movements. Here are some places to go for more information:
- StockCharts has a good explainer.
- The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International, which has much information freely available.
- His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis.
- So is his company’s valuable pragmatic publication, Visual Guide to Elliott Wave Trading.
- For any interested in the theoretical side of Elliott wave as applied to finance, Prechter’s The Socionomic Theory of Finance is the book to read.
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.
All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Based on a work at www.timbovee.com.