SPY Analysis


Update 4/26/2019I exited SPY for an $0.83 loss on April 26, which is 21 days prior to expiration. Shares were trading at $291.53, or $9.17 above entry. Although the share price remained slightly below the break-even price, SPY had done nothing but rise since I had entered, and given the low implied volatility rank, I saw greater risk of greater loss rather than a profit.

I’ve seen Elliott wave analysis do this before — continue to trend upward even when the requirements for that uptrend are completed. The problem is with Elliott there are n boundaries in the direction of the trend except for the wave count, and waves can subdivide ad infinitum, allowing endless opportunities to say, in retrospect, “See, I was right.” 

Another problem with Elliott wave analysis, which is shares with every technical analysis device that I’ve seen, is that while it can say useful things about price, it is blind to time. As an options trader, time is of utmost importance for me. Time blindness, then, is a problem.

So going forward, I may consult Elliott wave analysis, but all trades, whether based on Elliott or not, will follow the same set of trading rules.

On this trade, shares rose by 3.3% over 37 days, or a +32% annual rate. The options position lost 53.6% for a -528% annual rate.

On March 20 I entered a short call spread on SPY, using options that trade for the last time 58 days later, on May 17. The premium is a $0.72 credit and the stock at the time of entry was priced at $282.36.

The profit zone for this position is $292.28 and lower.

I entered the position based on bearish signals using Elliot wave analysis.

The implied volatility rank (IVR) stands at 14.

Premium: $0.72 Expire OTM
SPY-bear call spread Strike Odds Delta
Long 297.00 90.0% 11
Break-even 292.28 85.5% 16
Short 293.00 81.0% 20

The premium is 36% of the width of the position’s wings.

The risk/reward ratio is 4.6:1.

By Tim Bovee, Portland, Oregon, April 27, 2019


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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