SPY Analysis (lot 4)

SPRD S&P 500 ETF Trust (SPY)

Update 3/9/2020The broad market downtrend, having completed its countertrend correction, resumed its rapid decline. I exited two trading days after entering, at 64% of maximum potential profit. The debit at exit was $0.50 per contract share, down 89 cents from the entry credit of $1.32. Shares were trading at $279.83 when I exited, $22.10 below their entry level.

The Elliott wave analysis shows the corrective 2nd wave peaking on March 4, the day I entered the position, and declining rapidly thereafter, with two opening gaps on the daily chart. I count the declining wave as a Minor 3rd wave within an Intermediate 3rd wave, generally a powerful combination. The implied volatility rank, already high, continue to rise, standing at 125.7% at exit, up 48.2 points from the entry level.

Shares declined by 7.3% over four days, or a -66,613% annual rate. The options position produced a 178% return for a 16,242.5% annual rate.

I have entered a short bear call spread on SPY, using options that trade for the last time 43 days hence, on April 17. The premium is a $1.39 credit and the stock at the time of entry was priced at $301.96

The implied volatility rank (IVR) stands at 77.1%.

This is lot 4 of SPY options traded on March 3.

Premium: $1.39 Expire OTM
SPY-bear call spread Strike Odds Delta
Long 333.00 91.0% 10
Break-even 323.61 87.0% 15
Short 325.00 83.0% 19

The premium is 34.8% of the width of the position’s wing.

The profit zone covers a 7.2% move to the upside.

The risk/reward ratio is 4.8:1, with maximum risk of $661 and maximum reward of $139 per contract.

By Tim Bovee, Portland, Oregon, March 5, 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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