IWM Analysis

iShares Russell 2000 ETF (IWM)

Lot 2020-1

Update 10/30/2020: I exited my bear call spread position on IWM 21 days before expiration, for a $0.98 credit per contract/share, a profit before fees of $0.64 per contract. Shares were trading at $155.08, down $2.30 from the entry level.

My decision to exit was based on prospects derived from Elliott wave analysis. By my count, the market at exit was in a B wave of Subminuette degree within a 4th wave of Minuette degree, all within a larger 3rd wave of Minute degree. The 21-day to expiration mark signals that profitable positions be sold, although the rules can be bent if the Elliott wave analysis is strong enough. The analysis pattern, suggesting a likelihood of a near-term rise. Rather than accept that risk, I took my profit.

Shares declined by 1.4% over  days for a -15% annual rate. The options position produced a 65.3% return for a 993% annual rate.

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
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


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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