S&P 500 ETF Trust (SPY)

Lot 2022-4

Update 4/12/2022: I exited my short bear call vertical options spread on SPY, two days before expiration, for an $8.50 debit per contract/share, a loss before fees of $392 per contract. Shares were trading at $443.33, up $20.5 from the entry level.

The Implied Volatility Rank at exit was 37.8%, down 64.9 points from the entry level.

I exited because the position because the options it was built from were days away from expiration. The position became unprofitable shortly after I entered it, and remained unprofitable as the share price moved contrary to my expectations.

Shares rose by 4.9% over 36 days for a +50% annual rate. The options position produced a 46.1% loss for a -468% annual rate.

---

I have entered a short bear call vertical spread on SPY, using options that trade for the last time 37 days hence, on April 14. The premium is a $4.58 credit per contract share and the stock at the time of entry was priced at $422.58.

The Implied Volatility Ratio stood at 102.7%.

Premium:	$4.58	Expire OTM
SPY-bull call spread	Strike	Odds	Delta
Calls
Long	440.00	72.0%	32
Break-even	434.58	66.5%	38
Short	430.00	61.0%	44

The premium is 91.6% of the width of the position’s short/long spread. The profit zone covers a 1.8% move to the upside and an unlimited move to the downside.

The risk/reward ratio is 1.2:1, with maximum risk of $542 and maximum reward of $458 per contract.

How I chose the trade. SPY, along with the rest of the S&P 500 family of instruments, ended an upward correction on March 7 at 441.11 and resumed its downtrend. I expect the price to move below 410.64, where the correction began, and perhaps significantly below that level. I set the strike price for the long call close to the peak of the upward correction, anticipating that the price won’t move above that level.

By Tim Bovee, Portland, Oregon, March 7, 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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.