SPY Analysis

SPDR S&P 500 ETF (SPY)

Update 8/14/2018: I exited SPY for a loss 50 days after entering the bear position and three days before the options expired. My exit price was a $7.79 debit with shares at $283.82, for a net loss of $3.99. The maximum risk at entry was $4.20, so I came in $0.21 shy of the worst case scenario.

 My entry on June 25 was based on an  Elliott wave analysis that showed wave 1 of Minute degree {+1} pushing downward. Elliott has its blind spots. The technique won’t tell duration, nor will tell magnitude. It is a “You Are Here” sign pointing to our location in the Elliott wave progression. Absent duration, we can’t say for sure when the situation will change, and absent magnitude, we can’t say how dramatic that change will be. 

As the 60-day chart SPY chart, with hourly bars, shows, the change happened soon after entry, and was a filled with drama.

spy20180814

In a bear position like this one, a rise is the equivalent of falling off a cliff. SPY fell off a cliff about a week after I entered the position, and dramatic fall it was, beginning swiftly and then moderating before my position hit bottom and bounced.

It’s close to being the worst imaginable scenario. But that’s why I hedge my positions. My maximum loss is known when I enter the position, and it’s a loss I’m willing take, otherwise I wouldn’t have placed the trade.

The results:

SPY rose by 4.9% over my 50-day holding period, for a +36% annual rate. The options position produced a 51.2% loss for a -374% annual rate.

Going forward, the 3rd wave to the downside at the Minuette degree has begun, and I shall re-enter a bearish position on SPY very soon.


I have entered a short vertical spread on SPY, using options that trade for the last time 53 days hence, on Aug. 17. The premium is a $3.80 credit and the stock at the time of entry was priced at $270.52.

I made the decision to enter the trade in my account based on an Elliott wave count showing the 3rd wave down of Minuette degree began on June 13.

Implied volatility stands at 18%, which is identical to the VIX, a measure of the volatility of the S&P 500 index.

SPY’s IV stands in the 50th percentile of its most recent broad movement..

The price used for analysis was $270.59.

Premium: $3.80 Expire OTM  
SPY-bear call spread Strike Odds Delta
Calls
Long 280.00 79.3% 22
Break-even 268.20 67.3% 35
Short 272.00 55.3% 47

The premium is 95% of the width of the position’s wings.

The risk/reward ratio is 1.1:1, with a maximum profit of $380 per contract and risk of $420 per contract.

The bid/ask spread was 1.1%.

By Tim Bovee, Portland, Oregon, June 25, 2018

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.

 

35 thoughts on “SPY Analysis

  1. […] SPY this morning is trading within the prior day’s range. In Elliott wave terms, at a very low degree the downward wave that began Friday is in a 4th wave counter-trend correction. (See Friday’s chart.) These are very small movements that have little significance to most human traders; the downward movement has only just begun and has much distance to travel before it reaches its end. […]

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