S&P 500 ETF Trust (SPY)

Update 2/14/2022: I exited my short bear call options spread on SPY, 32 days before expiration, for a $1.40 debit per contract/share, a profit before fees of $2.04 per contract. Shares were trading at $437.54, down $12.98 from the entry level.

The Implied Volatility Rank at exit was 66.1%, up 25.3 points from the entry level.

I exited because the position reached 50% of maximum potential profit, the exit goal under my rules for short option trades.

Shares declined by 2.9% over 13 days for a -81% annual rate. The options position produced an 85.0% return for a +2,387% annual rate.

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(I erred in entering the trade and created an iron condor rather than a bear call vertical spread. I’m treating the calls as a separate trade, and have adjusted some figures on this analysis to conform to the lower premium.)

I have entered a short bear call options spread on SPY, using options that trade for the last time 456 days hence, on March 18. The premium is a $4.44 credit per contract share and the exchange-traded fund at the time of entry was priced at $450.52.

The Implied Volatility Ratio stood at 40.8%.

Premium:	$4.44	Expire OTM
SPY-bear call spread	Strike	Odds	Delta
Calls
Long	466.00	74.0%	29
Break-even	460.80	67.0%	36.5
Short	456.00	60.0%	44

The premium is 44.4% of the width of the position’s short/long spread. The profit zone covers a 2.2% move to the upside and an unlimited move to the downside.

The risk/reward ratio is 1.3:1, with maximum risk of $546 and maximum reward of $444 per contract.

How I chose the trade. My Elliott wave analysis shows that an upward correction that began on January 24 on the S&P 500 is nearing an end. Under the results of Elliott, the price of the index and it’s deritives must remain below the end of the first wave of the downtrend that began on January 4. For SPY, the first wave ended at 456.60, and I placed the short strike at 456, which is as close to that level as the strike prices allowed.

By Tim Bovee, Portland, Oregon, February 1, 2022

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.