S&P 500 ETF Trust (SPY)

Lot 2023-4

Update 10/3/2023: I exited my short bear call vertical spread on SPY, 45 days before expiration, for a $1.13 debit per contract/share, a profit before fees of $112 per contract. Shares were trading at $421.42, down $9.14 from the entry level.

The Implied Volatility Rank at exit was 32.7%, up 9.2 points from the entry level.

I exited because the position reached 50% of maximum potential profit, my normal exit point for options positions.

Shares fell by 2.1% over eight days for a -97% annual rate. The options position produced a 99.1% return for a +4,522% 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 53 days hence, on November 17. The premium is a $2.25 credit per contract share and the stock at the time of entry was priced at $430.56.

The Implied Volatility Ratio stood at 23.6%.

Premium:	$2.25	Expire OTM
SPY-bear call spread	Strike	Odds	Delta
Calls
Long	458.00	87.0%	12
Break-even	450.25	80.5%	18.5
Short	448.00	74.0%	25

The premium is 45% of the width of the short/long spread. The profit zone covers a 4.6% move to the upside and an unlimited move to the downside.

The risk/reward ratio is 3.4 :1, with maximum risk of $775 and maximum reward of $225 per contract.

How I chose the trade. I chose the traded based on Elliott wave analysis, which concludes that a downtrend is underway. I selected the short strike price based on the expected range of the expiration close, based on the options pricing.

By Tim Bovee, Portland, Oregon, September 25, 2023

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.