EWZ Analysis

iShares MSCI Brazil Capped ETF (EWZ)

Update 11/8/2018: I’ve exited EWZ at a cost of $81 per contract, giving a profit of $5 per contract. Shares were priced at $39.88 at exit, $7.18 higher than the entry price.

EWZ rose sharply throughout most of my holding period, moving above the profit zone, and then returned to profitability  in the last week before I exited.

Shares rose by $22.0% over 51 days, or a +157% annual rate. The options position produced a 6.2% return for a +44% annual rate.

I have entered a very wide short iron condor spread on EWZ, using options that trade for the last time 59 days hence, on June 15. The premium is a $0.86 credit and the stock at the time of entry was priced at $32.70.

This is a high implied volatility play relying upon a political event: The general election in Brazil on Oct. 7 amid recovery from a recession and corruption scandals involving some politicians. All in all, it’s an uncertain situation, just the sort of thing to push implied volatility to extremely high levels.

Once the election is over, I anticipate a sharp decline in implied volatility, to the benefit of my position.

The extreme width of the spread reduces the premium. In this case, I’m relying on a steep fall in implied volatility from a high level to provide a bump to the profit. The position will require active management.

The trading idea is not mine but rather came from analysts at TastyTrade.

The profit zone for this position is between $40.86 on the upside and $24.86 on the downside.

Implied volatility stands at 50%, which is 3.9 times the VIX, a measure of the volatility of the S&P 500 index.

EWZ’s IV rank stands at 95.2%

The price used for analysis was $32.62.

Premium: $0.86 Expire OTM
EWZ-iron condor Strike Odds Delta
Long 43.00 92.7% 11
Break-even 40.86 89.3% 15
Short 40.00 85.8% 19
Short 27.00 75.8% 17
Break-even 24.86 82.2% 12.5
Long 24.00 88.5% 8

The premium is 28.7% of the width of the position’s wings.

The risk/reward ratio is 2.5:1.

The bid/ask spread was 4.6%.

By Tim Bovee, Portland, Oregon, Sept. 18, 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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