EWW Analysis

 iShares MACI Mexico ETF (EWW)

I have declined to take a a short iron condor spread on EWW, using options that trade for the last time 51 days hence, on Nov. 16. The hypothetical premium is a $1.01 credit and the stock at the time of entry was priced at $51.12. Since I passed on the trade, of course, neither money nor contracts changed hands.

The trade was proposed by a member of the TastyWorks team, Fauzia, who skewed her position sharply to the downside. That skew provided more protection against a decline and increased the premium, but at a high cost in risk.

It’s that high risk relative reward that persuaded me not to take the trade. I’m not at all criticizing the trade — it’s an excellent way to handle uncertainty — but it moves beyond my own willingness to accept risk. In my book a key element of trading success is knowing your risk limits and knowing when you’re willing to move beyond them.

The profit zone for this position is between $54.01 on the upside and $40.01 on the downside.

Implied volatility stands at 22%, which is 1.8 times the VIX, a measure of the volatility of the S&P 500 index.

EWW’s IV rank stands at 37%, which is high for a fund.

The price used for analysis was $51.03.

Premium: $1.01 Expire OTM
EWW-iron condor Strike Odds Delta
Long 54.00 79.4% 23
Break-even 54.01 75.1% 27.5
Short 53.00 70.7% 32
Short 49.00 68.3% 29
Break-even 40.01 83.7% 15
Long 39.00 99.0% 1

The premium is 18.4% of the width of the position’s wings.

The risk/reward ratio is 8.9:1, with maximum risk at $8.99 per share and maximum reward at $1.01 per share. Risk nine times reward is something I’m really reluctant to trade. I get nervous when the ratio exceeds 2:1

The bid/ask spread was 3.9%.

By Tim Bovee, Portland, Oregon, Sept. 26, 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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