SPY Analysis

SPDR S&P 500 ETF (SPY)

Update Oct. 25, 2017: SPY has completed its uptrend according to my Elliott wave count. I am closing this series and have opened a new series based on bear verticals, which may be read here.

The series began on Sept. 11, 2017, and I exited the final position on Oct. 6, for 25 days altogether. I was continually in the position throughout that period.

Shares rose by 1.6% over 25 days, or a +23% annual rate. The options position produced a +44.8% return for a +854% annual rate

Update Oct. 6, 2017: SPY paused at the close of the day of Oct. 5 and declined at the open in a pattern that struck me as showing a trend reversal by the standards of Elliott wave analysis. (I posted a more detailed analysis in Live: Friday, October 6, 2017.

I exited at 10.9% of maximum potential profit, well below my 50% target. The options were sold for a $0.41 debit with shares at $254.00.

I shall hold the series open until it is clear that my analysis is correct. If I got it right, then I shall end the series and calculate results, and at some point open a new, bearosh series.

My analysis will be correct if SPY stays below the Oct. 5 high of $254.75.

If I was wrong, and SPY rises above the high, then I add a new, bullish position to the series.


Update Oct. 4, 2017: SPY has begun a resumption of its upward trajectory, as I had expected, and as the price neared my target I rolled the position forward to different strike prices but and same expiration.

I exited the position entered on  Sept. 20 for $0.29 per contract, The exit was for 43.1% of maximum potential profit, a bit below my 505 target.

I rolled forward to the options that trade for the last time 44 days hence, on Nov. 17, with the following conditions:

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 5th percentile of its annual range and the at the peak of its most recent broad movement. 

The price used for entry and analysis was $253.05.

Premium: $0.48 Expire OTM  
SPY-vertical Strike Odds Delta
Puts      
Long 250.00 64.5% 34
Break-even 252.48    
Short 252.00 54.7% 44

The premium is 24% of the width of the position’s wings.

The risk/reward ratio is 23.2:1.


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:

Premium: $0.51 Expire OTM  
SPY-vertical Strike Odds Delta
Puts      
Long 249.00 50.7% 0.48
Break-even 247.51    
Short 247.00 63.2% 0.35

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

Premium: $0.55 Expire OTM  
SPY-vertical Strike Odds Delta
Puts
Long 246.00 63.0% 36
Break-even 248.55  ~58.9%  ~40
Short 248.00 54.0% 45

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:

Disclaimer

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.

License
Creative Commons License

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.

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