S&P 500 ETF Trust (SPY)

Lot 2022-6

Update 2/6/2023: I exited my short bear all vertical spread on SPY, 11 days before expiration, for a $7.26 debit per contract/share, a loss before fees of $446 per contract. Shares were trading at $409.98, up $29.17 from the entry level.

The Implied Volatility Rank at exit was 9.5%, down 14.4 points from the entry level.

I exited on the day after entry because the position had only 11 days to expiration and I wanted to avoid exercise.

Shares rose by 71.7% over 39 days for a +72% annual rate. The options position produced a 61.7% loss for a -577% annual rate.

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I have entered a short bear call vertical spread on SPY, using options that trade for the last time 50 days hence, on February 17, 2023. The premium is a $2.77 credit per contract share and the stock at the time of entry was priced at $380.81.

The Implied Volatility Ratio stood at 23.9%.

Premium:	$2.77	Expire OTM
SPY-bear call spread	Strike	Odds	Delta
Calls
Long	408.00	83.0%	19
Break-even	400.77	77.5%	24.5
Short	398.00	72.0%	30

The premium is 55.4% of the width of the position’s short/long spread. The profit zone covers a 5.2% move to the upside and an unlimited move to the downside.

The risk/reward ratio is 2.6:1, with maximum risk of $723 and maximum reward of $277 per contract.

How I chose the trade. I placed the trade based on Elliott wave analysis showing that S&P 500 — the index upon which SPY is based — began a downtrend on December 13.

By Tim Bovee, Portland, Oregon, December 29, 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

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Based on a work at www.timbovee.com.