IWM Analysis

Update 12/9/2015: I did a roll forward a week ago, but only bought a little bit of time in order to keep the debit low. IWM remains unprofitable with two weeks before expiration and I've folded my hand and closed out the position entirely.

Shares rose by 1.9% over 24 days, or a +29% annual rate. The options position produced a -16.0% loss on debit for a -244% annual rate.

Although I exited the position for a loss, by rolling I reduced the loss to a third of what it would have been without the rolls. So although I didn't manage a profit, the rolls were not a wasted effort.
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Update 12/4/2015: IWM remains above the zone of profitability and I've rolled it forward to DEC4 series of options, which complete trading on Dec. 24. I retained the strike prices.

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Update 11/17/2015: I've rolled IWM forward to December expiration in anticipation of a market downturn, retaining the bear call spread through the transition.

I exited the November position for a $2.54 debit and entred the Decmeber position for a $2.10 credit. I shall defer calculation of results until after the series is complete.

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The iShares Russell 2000 Index exchange-traded fund (IWM) closed below its 20-day price channel on Friday, sending a bear signal. The price has continued sharply lower the trading day following signal.

[Russell 2000 factsheet]

IWM

Ranges

Click on chart to enlarge.

IWM at 11:52 a.m. New York time, 30 days hourly bars

Implied volatility stands at 27.7%, which is 1.1 times the VIX, a measure of volatility of the S&P 500 index. IWM’s volatility stands in the 51st percentile of its annual range.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	120.92	132.46	118.89	N/A
Lower	97.85	86.31	109.42	N/A
Gain/loss	10.5%	21.1%

Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move
The Trade

Bear call spread, short the $111 calls and long the $114 calls,
sold for a credit and expiring Nov. 21.
Probability of expiring out-of-the-money

NOV	Strike	OTM
	111	59.5%

The premium is $1.33, which is 44% of the width of the position’s wings. The stock at the time of purchase was priced at $109.16.

The risk/reward ratio is 1.3:1.

Decision for My Account

I've opened a position in IWM as described above.

-- Tim Bovee, Portland, Oregon, Sept. 28, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

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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.

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Based on a work at www.timbovee.com.