Wednesday, September 23, 2015

S&P 500 Analysis

Update 9/28/2015: A broad market decline brought my profit on the NOV1 weekly series, expiring Nov. 6, above 50% of its maximum potential after subtracting fees, and I exited in order to avoid further time risk. I'll consider rolling forward to a later series on Tuesday.

Shares declined by 3.2% over five days, or a -236% annual rate. The options produced a 160.6% yield on debit, for a +11,724% annual rate.

I'm rolling forward my S&P 500 positions for October, exited a day ago, as a bearish position using the first weeklys in November, using SPX -- options on the index futures -- as a vehicle.

[S&P 500 in Wikipedia]


I shall use the NOV1 series of options, which trades for the last time 44 days hence, on Nov. 6.

Click on chart to enlarge.
S&P 500 at 10:37 a.m. New York time, 180 days 4-hour bars
Implied volatility stands at 21.9%. The index’s volatility stands in the 36th percentile of its annual range, or in the 67th percentile of the outlier -- the China Panic of Aug. 24 -- is tossed out.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

I'm structuring the position as a bearish one because, in part, of the strong likelihood that the Federal Open Market Committee will raise interest rates in the near futures. The risk, in my view, is all to the downside.

In addition, the chart shows a low at the time of the China Panic, a retracement to a lower high, and the price now moving in the direction of a potential lower low, all in the context of an index that peaked on May 20 and has headed south ever since. It's a downtrend, without a doubt.

Bear call spread, short the $0 calls and long the $0 calls,
sold for a credit and expiring Nov. 7.
Probability of expiring out-of-the-money


The premium is $4.30, which is 43% of the width of the position’s wing.The shares at the time of purchase was priced at $1,947.51.

The risk/reward ratio is 1.3:1.

Decision for My Account

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

-- Tim Bovee, Portland, Oregon, Sept. 23, 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.
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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