Shares rose by 0.7% over 16 days, or a +16% annual rate. The options produced a +450.0% yield on debit, for a +10,266% annual rate.
The S&P 500 exchange-traded fund SPY rebounded on Tuesday, the day after the China Crash. I'm considering a direction neutral position with a wide zone of profit in anticipation of a sharp decline in volatility.
No trading signal. No earnings, obviously. This is a pure volatility play.
[SPY in Wikipedia]
I shall use the SEP series of options, which trades for the last time 24 days hence, on Sept. 18.
Click on chart to enlarge.
|SPY at 10:10 a.m. New York time, 30 days hourly bars|
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
short the $170 puts and long the $167 puts,
sold for a credit and expiring Sept. 19.
Probability of expiring out-of-the-money
The premium is $0.55, which is 18% of the width of the position’s wings. The stock at the time of purchase was priced at 193.98
The risk/reward ratio is 4.5:1.
The zone of profit in the proposed trade covers a $17.50 move either way. The average true range on the last up day intra-day before Monday's China Crash was $2.06, so the zone is equivalent to about 8-1/2 days of movement.
Decision for My Account
I've opened a position on SPY as described above.
-- Tim Bovee, Portland, Oregon, Aug. 25, 2015
My volatility trading rules can be read here.
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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.
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