3:30 p.m. New York time

Half an hour before the closing bell. A low-level downward correction of the S&P 500 that began with Friday’s high was completed today. The correction of was 4 of Bitsy degree, and the subsequent Bitsy wave 5 has risen to new heights. Bitsy 5 is the last leg of uptrending wave 3 of Subminuscule degree. I’ve updated the chart.

9:55 a.m. New York time

What’s happening now? The S&P 500 E-mini futures pulled back slightly from Friday’s peak, 4463.25, in an uptrend that began August 4 from 4391.25

What does it mean? The pullback is a low level correction within a series of nested uptrends that began on July 19 from 4224 following a 160-point decline, within a series of nested uptrends of still larger degree.

What’s the alternative? None regarding the nature of the rise. There are low-level labeling issues, which I discuss in detail in the Elliott wave theory section, below.

What does Elliott wave theory say? In ascending order, the low-level correction is wave 4 of Bitsy degree — a very low level indeed — within wave 3 of Subminuscule degree degree, which began on August 4, within wave 3 of Minuscule degree, which began on August 3, within wave 5 of Submicro degree, which began on July 19 from 4224.

The whole structure from July 19 begins with an unnaturally long Minuscule wave 1 of 192.75 points that ends at 4416.75. From that point, there’s a sideways correction of Minuscule degree that looks more like a 4th wave than a 2nd wave — 2nd waves tend to be of the Zigzag pattern. The correction ended on August 3 and was followed by a Minuscule degree 3rd wave of unnatural shallowness — 3rd waves usually carry a lot of energy, and this 3rd can barely roll out of bed in the morning.

Within Minuscule wave 3, the waves are poorly differentiated, with no powerful 3rd waves in the required positions. Internals like this require the analyst to repeatedly subdivide larger waves into smaller waves. That’s natural in Elliott wave analysis, given the fractal nature of the market’s movements, but it’s not generally this visible.

So, bottom line: I have very little confidence in the internal labelling of waves within Submicro wave 5. What I’ve done is the best I’ve got, but the whole structure could be dismantled a day’s price movement. I’m finding the best way to see the chart is to focus less on the internals of Submicro wave 5 and more on the upper boundary of the Minuette degree price channel drawn in red on the chart, which is the ultimate target of the rise that began March 4 from from 4056.88.

One little gotcha to look out for: Under the rules of Elliott wave analysis, a 3rd wave can’t be the short of the three odd-numbered waves in a trend. Since Minuscule wave 1 is 192.75 points long, Minuscule 3 would to exceed 4558 to be longer than wave 1. My experience has been that the 3rd wave is almost always the longest of the three. If Minuscule 3 falls short of 4558, then the following 5th wave would have to be shorter than wave 3 in order to be in compliance with the rules. If the 5th wave is longer, then it would require a complete recount within Submicro wave 5.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 16, 2021

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.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 continued its slow rise, climbing by only a few points during the day. No change in the analysis. I’ve updated the the top chart.

9:40 a.m. New York time

What’s happening now? The S&P 500 E-mini futures continued to rise in overnight trading, reaching a new high of 4460.50 in the minutes after the opening bell. The index also reached a new high, 4466.77, in early trading.

What does it mean? The upper boundary of a price channel that began on March 4 is about 200 points away from the current price, and since that boundary itself is rising, it will be above 4700 if it takes a month for the price to reach that boundary.

What’s the alternative? At this point I have no alternative. The big ambiguity is how long it will take the price rise from March 4 to reach completion. Haven’t a clue, but I discuss the question in the Elliott wave theory section.

What does Elliott wave theory say? Price channels, such as the Minuette degree channel on the upper chart, are drawn by connecting the starting points of subwaves. Initially, the Minuette degree channel connected the start of Subminuette waves 1 and 3. A stage two channel became possible when wave 5 began, and the present channel connects the the starting points of waves 3 and 5 as the lower boundary, with the upper drawn as a line at the same angle as the lower boundary, intersecting the end of wave 3.

I’ve found price channels to be good indicators of how high a trend is likely to go, although not a perfect indicator. Sometimes the price will shoot beyond a boundary, and sometimes it will come up short. So I think of a channel boundary as a good guess hedged in by possible extremes.

Today’s high so far is about a third of the way up the distance from the lower boundary to the upper. So Minuette wave 5, which began on May 13 from 4029.25, still has some distance to go. The uptrend that began on Aug. 3 from 4365.25 is wave 3 of Minuscule degree, four degrees down from the Minuette degree that forms the basis for channel. That difference in degree gives plenty of room for the price to rise at a normal pace — it doesn’t require an extraordinary burst of energy to reach the upper boundary. So I expect business as usual, if that phrase has any meaning when applied to the markets.

The lower chart shows that all of this is happening within a much larger structure, a Diagonal Triangle based on wave 5 of Intermediate degree that began on December 26, 2018 from 2346.58 on the S&P 500 index. Internally, Intermediate wave 5 is now in its 3rd of five waves — wave 3 of Minor degree. The upper boundary is being defined by the present series of new highs.

The upper chart’s Minuette degree price channel began on May 11, and I’ve marked that point on the lower chart with a red arrow to show the large difference in scale between the Minuette degree channel and the Intermediate degree triangle.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 13, 2021

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.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 rose to new heights in what is the middle leg of a low-degree uptrend that began with yesterday’s price reversal. The E-mini futures had reached 4454.50 so far, and the index, 4460.41.

In Elliott wave analysis nomenclature: The present low-degree uptrend is a 3rd wave within wave 5 of Subbitsy degree within wave 3 of Bitsy degree within wave 3 of Subminuscule degree. From this structure, we can next expect a shallow correction within within wave 5 of Subbitsy degree, and then an upward push to completion of the parent wave, Bitsy degree 3. At that higher level, what comes next is a shallow wave 4 correction of Bitsy degree, and then a push higher.

More succinctly. We’re going to have a series of climbs and corrections as the S&P 500 works its way up toward completion of 3rd and 5th waves of increasingly greater degree. This all neatly illustrates the fractal nature of market movements.

“WAIT A BIT, TYEK,” FARAD’N SAID. “THERE ARE WHEELS WITHIN WHEELS HERE.”

—CHILDREN OF DUNE BY FRANK HERBERT (1976)

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures reached a new high, 4444.25, before the opening bell and then dropped back by five points. The index didn’t set a new high at opening; the peak remains at yesterday’s high, 4449.44.

What does it mean? The rise that began August 4 from 4391.25 continues. It is a small part of the end game of a far larger move that began on February 23, 2020 from 2191.86.

What’s the alternative? The new high, like the last one, can be seen as a marker that ties together two corrective patterns within this month’s rise, in a compound structure. I consider this to be the less likely scenario.

What does Elliott wave theory say? A very close-in view on the chart.

Under my principle analysis, the rise from August 4 is wave 5 of Bitsy degree within wave 3 of Subminuscule degree within wave 3 of Minuscule degree, which began July 19 from 4224. The entire structure is set within wave 3 of Minor degree, five degrees higher, which is the third leg of an expanding Diagonal Triangle, wave 5 of Intermediate degree, that began December 26, 2018.

Under my alternative analysis,

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 12, 2021

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.

2:25 p.m. New York time

What’s happening now? Bitcoin futures have reached a high of 46,835 so far today, the highest since the present uptrend began on June 22 from 28,800.

What does it mean? The rise is an uptrending movement within a larger upward correction that in turn is part of a still larger downtrend. The completion of the present uptrend will be followed by a downward movement that will remain above 28,800, and then another upward movement that will complete the correction. That final upward movement will remain below the April 14 peak, 65,520.

What’s the alternative? The June 22 low can be counted as the end of the first leg in a downward correction, to be followed by an upward movement and then a movement still lower. The correction will be followed by a rise that will be above the April 14 peak of 65,520, perhaps significantly higher.

What does Elliott wave theory say? By my principle count, the June 22 low completed wave 1 of Micro degree, part of a major downtrend that began with the peak on April 14 with the end of wave 5 of Micro degree. Wave 2 of Micro degree is underway, and internally is nearing the end of wave A of Submicro degree, a five-wave rising structure within a Zigzag correction. Submicro A appears to be in Minuscule wave 5, the final wave of the structure, and will be followed by wave B of Submicro degree to the downside and then a Submicro wave C that will move beyond the A-wave’s peak. All of that will be followed by wave 3 of Micro degree, a significant decline to new lows.

By my alternative count, the April 14 peak ended wave 3 of Micro degree and the subsequent decline is wave A of Submicro degree within wave 4 of Micro degree, a downward correction that is most likely a Zigzag, since the A wave clearly has five subwaves. The rise that began June 22 is wave B of Submicro degree. Under this scenario, the completion of wave 4 of Micro degree will be followed by wave 5 of Micro degree, which will carry the price to new heights, perhaps significantly so.

At this point under the rules of Elliott wave analysis, there is no way to say which scenario the market will follow. Since Bitcoin allows for bull trades only, my plan is to trade the Micro degree. Using the principle analysis labelling, I’ll sit out the internal 5th wave of Micro wave A, and the decline of Micro wave B. From the B-wave low, I’ll re-enter my positions and ride Micro wave C to a new high. The same plan works for the alternative analysis, but with different labels.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 11, 2021

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.

3:30 p.m. New York time

Half an hour before the closing bell. Having peaked 15 minutes before the opening bell, the S&P 500 traded slightly lower throughout the day. By my principle count wave 3 of Subminuscule degree is still underway. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures rose as the opening bell approached, reaching a high of 4443.25 so far today. The high on the index so far is 4449.32.

What does it mean? The low level correction within the uptrend that began August 4 is complete and a final push upward has begun.

What’s the alternative? The pushup could be a connector, bonding together two corrective patterns.

What does Elliott wave theory say? The rise from August 4 is wave 3 of Subminuscule degree, and the correction within that wave is wave 4 of Bitsy degree. By my principle analysis, the overnight rise is the beginning of wave 5 of Bitsy degree, the final wave within Subminuscule 3. By my alternative analysis, the rise is an X wave, connecting two corrective patterns in a compound wave 4 correction. The first pattern was a Flat, and the second pattern most likely will be another Flat or a Zigzag.

The completion of Bitsy wave 5 will also mark the end of Subminuscule wave 3, which will be followed by a deeper correction of the higher Subminuscule degree, although it most likely will be trending sideways.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 11, 2021

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.

3:30 p.m. New York time

Half an hour before the closing bell. After nudging up to a new high, with little enthusiasm, the S&P 500 moved a bit lower. No change to the mid-day analysis. I’ve updated the chart.

12:35 p.m. New York time

Midday update. The S&P 500 rose to new highs today, confirming my principle analysis. The 4th wave correction of Bitsy degree is over, and the parent, wave 3 of Subminuscule degree, has resumed its rise. The alternative analysis is no longer valid. I’ve updated the chart.

9:35 a.m. New York time

What’s happening now? The S&P 500 E-mini futures overnight continued their low-level sideways correction within a higher level uptrend.

What does it mean? The correction will be followed by a resumption of the higher level uptrend within a series of still larger uptrends dating back to May 19 at a price of 4055.50, which I expect to reach the upper boundary of the price channel marked in red on the chart. The channel is presently at around 4590 and will have risen further by the time the uptrend from May is complete.

What’s the alternative? It is possible that the August 6 high of 4433.25 marked the end of the rise that began August 3 from 4365.25. If that’s the case, then the higher level uptrend has moved into a correction. See yesterday’s post for a discussion.

What does Elliott wave theory say? Under my principle analysis, I count the present sideways correction as wave 4 of Bitsy degree within wave 3 of Subminuscule degree. The rise that began on May 19 is wave 3 of Micro degree, up three degrees from Subminuscule.

Under my alternative analysis, the August 6 high of 4433.25 was the end of wave 3 of Subminuscule degree and the present sideways correction is Subminuscule wave 4. Basically, the alternative scenario shifts the count up by one degree. I explained my reasons for considering this to be the less likely analysis in yesterday’s post.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis

By Tim Bovee, Portland, Oregon, August 10, 2021

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.

3:30 p.m. New York time

Half an hour before the closing bell. The S&P 500 spent the day trading within a barely visible extremely narrow range, working it way upward by a few points. I’ve updated the chart. No change in the analysis.

3:10 p.m. New York time

My trading. I’ve exited my short naked option position on GDX, after three days. The results may be found here, along with the reason why.

9:35 a.m. New York time

Posted over the weekend. Trading rules for diagonal options spreads.

What’s happening now? The S&P 500 E-mini futures fell in overnight trading to 20 points below Friday’s high of 4433.25.

What does it mean? By my principle analysis, the decline is a correction within the ongoing rise that began on August 4.

What’s the alternative? That Friday’s peak marked the end of that rise, and a downward correction — probably a shallow one — has begun.

What does Elliott wave theory say? The rise from August 4 is wave 3 of Subminuscule degree. My principle analysis has wave 3 still underway. The alternative says that wave 3 ended at Friday’s peak (August 6), and that Subminuscule wave 4 has begun.

My reasoning for the principle analysis is this: Most commonly in an uptrend, the 3rd wave is the largest of the three waves in the direction of the trend. Wave 1 of Subminuscule degree was 52 points long, and wave 3 of the same degree so far has covered only 42 points, making it shorter than wave 1. So the likelihood, I think, is that wave 3 still has more ground to cover.

However, Elliott wave theory says only that wave 3 can’t be the shortest wave in the direction of the trend. There’s no requirement that it be the longest. So my alternative analysis recognizes the possibility that wave 3 ended on August 6, with wave 3 being shorter than wave 1. If the alternative proves to be the case, then wave 5 can be no more than 42 points long, and could be less.

Learning and other resources. Elliott wave analysis provides context, not prophecy. As the 20th century semanticist Alfred Korzybski put it in his book Science and Sanity (1933), “The map is not the territory … The only usefulness of a map depends on similarity of structure between the empirical world and the map.” And I would add, we can judge that similarity of structure only after the fact.

See the menu page Analytical Methods for a rundown on where to go for information on Elliott wave analysis.

By Tim Bovee, Portland, Oregon, August 9, 2021

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.

Diagonal Spread Trading Rules

Unlike the short vertical spreads that have long been the bread-and-butter of my trading, diagonal spreads work well regardless of the implied volatility rank. They’re a good alternative to short vertical spreads in periods when IVR is low across the market.

A long diagonal spread is built from a short option closer in time and a long option with a different strike further out in time. If the options are calls, then the position is bullish. If puts, then bearish.

Here are the rules:

• Buy a long option
  • 90 to 120 days before expiration
  • Delta around 80
• Sell a short option
  • 30 to 60 days before expiration, with 45 days being optimal
  • Delta 30 to 50
  • Ensure that the premium of the short option is  equal to or greater than the extrinsic value of the long option. This becomes easier to obtain the deeper in the money the long options is placed.
• Ensure that the net debit is around 50% of the spread and that it never exceeds 75% of the width.
• Exit for a win if the stock price moves significantly in the direction of the trade,  rises (for calls) or falls (for puts).
• Roll the short option to a lower strike (for calls) or higher strike (for puts) if the share price moves significantly against the direction of the trade. (“Significantly” is undefined; I look at the potential loss, the trend on the chart, and then follow my intuition.)

Although maximum profit cannot be determined precisely, it can be estimated by subtracting the net debit paid from the width of the strikes. 

The breakeven point can be calculated by subtracting the net debit paid from the long strike price.

By Tim Bovee, August 8, 2021, Portland, Oregon

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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.

The subject is much less risqué than the title would suggest. A naked options position is one without at countervailing purchase to limit loss. The “short” means that the naked options are sold to begin with, and then bought at the end, one hopes at a lower price. My newly opened short naked call position on GDX is an example.

Positions: Short Naked Puts or Short Naked Calls

• Set the strike price somewhere from delta 16 to 30. The higher the delta, the greater the risk and the smaller the odds of success.
• Select an underlying stock whose Implied Volatility Rank (IVR) is 25% or greater. The higher the IVR, the greater the potential return. (This is similar to the IV Percentile found on many trading platforms.

Entry timing: As close as possible to 45 days prior to expiration, giving preference to monthly options. Generally, I won’t enter after 43 days prior to expiration.

Due diligence before entry:

• Avoid earnings announcements
• Avoid ex-dividend days
• Ensure that the potential loss is within the trader’s guidelines for managing trading funds.

Exit rules:

• Up to 21 days prior to the options expiration
  • Exit at 50% of maximum potential profit.
  • Exit at 50% of maximum potential loss.
• If one these conditions occurs — a loss that is twice the credit received, a move beyond the short strike price, or 21 days prior to the options’ expiration — consider taking one of the following actions:
  • If profitable, exit the position
  • If unprofitable, do one of the following,
    • Exit the position.
    • Roll the position to the same strike price a month later, if doing so produces a net credit after the loss on the current condition is subtracted.
    • Buy options that will offset the short options, converting the position into a defined risk trade.

By Tim Bovee, August 6, 2021, Portland, Oregon

Read More »

VanEck Vectors Gold Miners ETF  (GDX)

Update 8/9/2021: I exited my naked call option position on GDX three days into the trade, for a $0.25 debit per contract/share, a profit before fees of $0.14 per contract. Shares were trading at $32.51, down $0.53 from the entry level.

My decision to exit was based on the fact that I found being in a position with no downside limit to be nervous-making and not to my taste. It was an experiment, and I doubt that I’ll repeat it any time soon. 

The price of GDX decline precipitously during my short holding period. And despite my concerns, the position was wildly successful.

Shares declined by 1.6% over three days for a -195% annual rate. The options position produced a 58.3% return for a 7,097% annual rate.

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I have sold a call option on GDX, using an option that trades for the last time 42 days hence, on September 17. The premium is a $0.38 credit per contract share and the stock at the time of entry was priced at $33.04.

The implied volatility rank (IVR) stands at 27.7.

I have not done much trading in which I sell naked options, a term meaning that there is no offsetting purchase to limit the loss. The trader is responsible for keeping losses reasonable. So I think of this small trade as education.

Premium:	$0.38	Expire OTM
GDX-naked	Strike	Odds	Delta
Calls
Short	36.00	82.0%	22

The profit zone covers an 8.2% move to the upside.

The risk/reward ratio is 8.7:1, with cover risk of $332.24 and maximum reward of $38 per contract. The cover risk is based on the amount required by brokerage to cover the position. The maximum loss, if the stock goes to zero, is $3,600, the price of 100 shares.

I structured the trade using Elliott wave analysis. The degree labels are relative to one another and don’t refer to named degrees. GDX has fallen from its May 19 peak in a what is either a 1st wave within a downtrend, or an A wave within a correction. In either case, I’m anticipating that the price will remain below the $35.82 August 4 peak. If the price approaches that level, then I will consider rolling it further up to return the position to profitability. The ability to make such adjustments is one of the huge advantages afforded by naked options.

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By Tim Bovee, Portland, Oregon, August 6, 2021

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.