SPY Analysis


Update 8/21/2018I exited my SPY position a day after entering. The price moved up, my position was based on the hypothesis that the price would move down, and there was no longer any justification for holding.

In the process of rising, SPY on my chart violated a firm rule in Elliott wave analysis: A 2nd wave can’t move beyond the start of the preceding 1st wave of the same degree. The move carried SPY above the Aug. 7 high, which is where wave 1 began.

The SPY chart covers 15 days with 10-minute bars. I’ve marked the Aug. 7 high with a red line.


Elliott wave analysis operates like the scientific method: Conclusions are valid for the information available at that time, but new data can invalidate the analysis. That’s what happened here.

That characteristic is one reason I use Elliott in my trading. Unlike other other methods, which provide absolute answers, Elliott explicitly recognizes the limits of what we know and sends us back to form new hypotheses to account for new information.

exited for a $4.54 debit, a 30-cent loss excluding fees, with shares at $286.78, up 99 cents from entry.

Shares rose by 0.4% over one day for a +126% annual rate. The options position produced a 6.6% loss for a -2,412% annual rate.

I have entered a short vertical spread on SPY, using options that trade for the last time 88 days hence, on Nov. 16. The premium is a $4.24 credit and the stock at the time of entry was priced at $285.79.

I made the decision to enter the trade in my account based on my Elliott wave analysis of the chart. I show SPY completing a corrective wave to the upside, with two possibilities going forward: Resumption of the downward trend or a downwave within the upward countertrend corrective wave.

Implied volatility stands at 13%, which is identical to the VIX, a measure of the volatility of the S&P 500 index.

SPY’s IV stands in the 12th percentile of its range over the past year and stands in the 14th percentile of its most recent broad movement..

The price used for analysis was $285.83.

Premium: $4.24 Expire OTM
SPY-bear call spread Strike Odds Delta
Long 297.00 81.6% 19
Break-even 282.76 67.7% 34
Short 287.00 53.7% 48

The premium is 85% of the width of the position.

The risk/reward ratio is 1.4:1.

The bid/ask spread was 0.7%.

By Tim Bovee, Portland, Oregon, Aug. 20, 2018


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.

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