S&P 500 Analysis

Update 9/22/2015: I exited SPX as my profit exceeded half of its maximum potential.

Shares rose by 0.4% over 18 days, or a +9% annual rate. The position produced a 194.8% yield on debit, for a +3,952% annual rate.

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As my September position on the S&P 500 index nears expiration, I'm entering into a new position on the index expiring in October. This is in line with the maxim carpe diem -- seize the day -- while implied volatility is high.

For the September position I used SPY -- the S&P 500 exchange-traded fund. This time, I'll be trading options on S&P futures, which has an inconsistent symbol terminology. The symbol I'll use in this analysis  SPX, the symbol used by my broker, TD Ameriotrade.

No trading signal or  earnings. This is a pure volatility play.

[S&P 500 in Wikipedia]

SPX

I shall use the OCT series of options, which trades for the last time 41 days hence, on Oct 16.

Ranges

Click on chart to enlarge.

SPX at 10:15 a.m. New York time, 30 days hourly bars

Implied volatility stands at 27.5%. SPX’s volatility stands in the 55th percentile of its most recent rise, and at 67% of the peak for the past  year.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	2,104,43	2,282.08	1,993.48	N/A
Lower	1,749.13	1,571.48	1,867.01	N/A
Gain/loss	9.2%	18.4%

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

Iron condor, short the $2,040 calls and long the $2,060 calls,
short the $1,675 puts and long the $1,655 puts,
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money

OCT	Strike	OTM
Upper	2040	84.1%
Lower	1675	87.2%

The premium is $5.25, which is 26% of the width of the position’s wings. The stock at the time of purchase was priced at $1,926.78.

The risk/reward ratio is 2.8:1.

The zone of profit in the proposed trade covers a $182.50 move either way, or five times the average true range.

Decision for My Account

I've opened a position in options on the S&P 500 futures as described above.

-- Tim Bovee, Portland, Oregon, Sept. 4, 2015

References

My volatility trading rules 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.

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.