iShares Russell 2000 ETF (IWM)

Update 3/4/2021

I exited my iron condor options spread position on IWM 15 days before expiration, for a $1.99 credit per contract/share, a profit before fees of $56 per contract. Shares were trading at $213.56, up $1.40 from the entry level. The implied volatility rate stood at 20.1%, 4.1 points below the 24.2% entry rate.

My decision to exit was based on Elliott wave analysis. At entry I had interpreted the chart to mean that price had reached the end of an upward correction — wave 4 of Subminuscule degree — when in fact the price followed an alternate interpretation, that the peak was actually ended the first wave (A) of the rise,  The options position grew increasingly less profitable as the price climbed to 226.79, the Subminuscule 4. The price then began to works its way down in a resumption of the main trend, wave 5 of Subminuscule degree. At that point analysis told me the price would become profitable, eventually. The only question was one of timing — would it return to profitability before the options expired, a question of duration upon which Elliott can offer no advice. The position returned to profitability today, as Subminuscule 5 fell sharply, and I exited. The two vertical lines on the chart mark when I entered and when exited.

The position was skewed toward the downside, meaning I had set the upper short strike price at 220, or delta 36, rather than unskewed delta 16, which would have been around 236. Had I built an unskewed structure, the position would have remained profitable throughout. Skewing gave greater potential profit, a necessity to make the trade worthwhile during a low implied volatility period.  

Shares rose by 0.7% over 29 days for a 11.3% annual rate. The options position produced a 14.1% return for a 177.1% annual rate.

Update 2/26/2021 

This is 20 days prior to options expiration for this short iron condor spread on IWM. By my rules I would normally close the position today. It is unprofitable, although trading within the profit zone, below the short call strike price of 220..

I’ve decided to hedge my rule and hold the position over the weekend, based on Elliott wave analysis. IWM is now in a 4th wave of Subminuscule degree. The 5th wave that will follow shortly will bring the price further down into the profit zone, reducing the cost of exit to profitability. Or so my theory goes.

Here’s the chart, IWM at 2:25 p.m., 5-minute bars, with volume:

Analysis 2/3/2021

I have entered a short iron condor spread on IWM, using options that trade for the last time 44 days hence, on March 19. The premium is a $2.27 credit per contract share and the stock at the time of entry was priced at $212.14.

The implied volatility rank (IVR) stands at 24.2.

Premium:	$2.27	Expire OTM
IWM-iron condor	Strike	Odds	Delta
Long	225.00	76.0%	26
Break-even	222.27	71.5%	31
Short	220.00	67.0%	36
Puts
Short	188.00	81.0%	16
Break-even	185.27	83.0%	14
Long	183.00	85.0%	12

The premium is 45.4% of the width of the position’s wing.

The profit zone covers a 4.8% move to the upside and a 14.5% move to the downside, for a total range of 19.3%.

The risk/reward ratio is 1.2:1, with maximum risk of $273 and maximum reward of $227 per contract.

Strategy. I set the wings of the iron condor based on Elliott wave analysis of the IWM chart, which shows the January 25 high, $217.91, to be the peak of an uptrend, and the subsequent decline to be the beginning of either a new downtrend. I set the short put, the lower boundary of my profit zone, below the end of wave 1 to the downside, at 203.25 set on January 29. The subsequent upward move is a wave 2 correction.

By Tim Bovee, Portland, Oregon, February 3, 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.

License

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Based on a work at www.timbovee.com.