SPY Analysis (lot 3)

SPRD S&P 500 ETF Trust (SPY)

Update 3/4/2020: I have exited my short bear call spread position on SPY, which was due to expire on March 20, just 16 days away. The debit was $0.46, which is 42.5% of maximum potential profit. Shares declined by $2.49, or 0.8%, to $306.53, during the one-day holding period.

The options positions produced a 72.5% return for the day, or a 26,978% annual rate.

I have entered a short bear call spread on SPY, using options that trade for the last time 17 days hence, on March 20. The premium is a $0.80 credit and the stock at the time of entry was priced at $308.25.

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

This is lot 3 of SPY options traded on March 3.

Mea culpa: I had intended this trade be built from options expiring April 17. I made an error in setting it up. The difference between the mistaken March expiry and the intended April is that March has a lower premium that covers less of the position’s wing, provides narrower upside protection and exposes me to a higher risk/reward ratio. Even so, the metrics are still well within my standards, and having made the trade, I shall treat it according to the rules I use for other options trades. It may yet prove to be serendipitous.

Premium: $0.80 Expire OTM
SPY-bear call spread Strike Odds Delta
Long 330.00 94.0% 7
Break-even 323.20 90.0% 12
Short 324.00 86.0% 16

The premium is 26.7% of the width of the position’s wing.

The profit zone covers a 4.8% move to the upside.

The risk/reward ratio is 6.5:1, with maximum risk of $520 and maximum reward of $80 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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