IWM Analysis

iShares Russell 2000 ETF (IWM)

I have entered a short bear call spread on SPY, using options that trade for the last time 45 days hence, on November 20. The premium is a $1.62 credit per contract share and the stock at the time of entry was priced at $157.36.

The implied volatility rank (IVR) stands at 32.

Premium: $1.62 Expire OTM
IWM-bear call spread Strike Odds Delta
Calls
Long 172.00 86.0% 18
Break-even 164.38 84.0% 20
Short 166.00 82.0% 22

The premium is 54% of the width of the position’s wing.
The profit zone covers a 4.5% move to the upside and unlimited to the downside.

The risk/reward ratio is 2.7:1, with maximum risk of $438 and maximum reward of $162 per contract.

Elliott wave analysis: At the time entry IWM appeared to have completed a  Minuette wave 4 upward correction within downtrending Minute wave 1. If in fact wave 4 is complete, the price is in for a drop down to the vicinity of the $130s. If it is instead embarking on an extension of wave 4, then the trade’s structure provides ample upside protection to allow for a minimally profitable exit.

By Tim Bovee, Portland, Oregon, October 6, 2020

Disclaimer

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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Based on a work at www.timbovee.com.

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