SPY Analysis (lot 1)

SPRD S&P 500 ETF Trust (SPY)

Update 3/6/2020: SPY rose slightly after I entered this position and then resumed its downtrend, hitting the exit point dictated by my rules. I closed the position for a $0.59 debit, down $0.59 from the entry credit, with shares trading for $293.15, down $17 from the price at entry. The exit came at 50% of maximum potential profit.

SPY had done a correction after a large decline beginning February 19 and resumed its downward movement after I entered the position, quickly hitting its exit point 42 days before expiration. The implied volatility rank stood at 104.6, up 46.5 points from the entry level.

Shares declined by 5.5% over three days, or a –669% annual rate. The options position produced a 100.0% return for a +12,167% annual rate.

I have entered a short bear call spread on SPY, using options that trade for the last time 45 days hence, on April 17. The premium is a $1.18 credit and the stock at the time of entry was priced at $310.18.

The implied volatility rank (IVR) stands at 58.1%.

This is lot 1 of two similar spreads on SPY expiring in April.

Premium: $1.18 Expire OTM
SPY-bear call spread Strike Odds Delta
Long 334.00 81.0% 19
Break-even 326.82 85.5% 15
Short 328.00 90.0% 10

The premium is 39.3% of the width of the position’s wing.

The profit zone covers a 5.4% move to the upside.

The risk/reward ratio is 4.1:1, with maximum risk of $482 and maximum reward of $118 per contract.

By Tim Bovee, Portland, Oregon, March 3, 2020


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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