Monday, June 27, 2016

IWM Analysis

Update 8/8/2016: I exited IWM for a loss as it pulled within two weeks of expiration. The rose above the upper boundary of the iron condor.

Shares rose by 13.1% over 42 days, or a +114% annual rate. The options position produced a 68.2% loss on debit for a -593% annual rate.

Update 6/27/2016: In order to get a fill after sharp movements of the underlying shares, I had to rework the trade. I've updated the ranges and trading figures.

The iShares Russell 2000 Index exchange-traded fund (IWM), which represents 2,000 small-cap stocks and is commonly used as a benchmark for that segment of the market, closed Friday with implied volatility high enough by my standards to qualify for a closer look

[Russell 2000 Index in Wikipedia]


I shall use the AUG series of options, which trades for the last time 53 days hence, on Aug. 19.


Implied volatility stands at 30%, which is 1.2 times the VIX, a measure of volatility of the S&P 500 index. IWM’s volatility stands in the 78th percentile of its most recent range. The price used for analysis was $108.24.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; central tendency earns move

Visual Guide to Elliott Wave Trading
by Wayne Gorman

The Trade

IWM hit a low on Feb. 11 and reversed, moving to the upside in a correction. Longer-term, the trend is up, with the Feb. low counting as a fairly shallow retracement from the highest high set in June 2015.

This is a near-term trade, and in the aftermath of the U.K. vote to leave the European Union, all is turmoil. I shall use a direction-neutral strategy.

Iron condor, short the $115 calls and long the $117 calls,
short the $96 puts and long the $94 puts,
sold for a credit and expiring Aug. 20.
Probability of expiring out-of-the-money

The premium is $0.62, which is 31% of the width of the position’s wings. The stock at the time of entry was priced at $108.24.

The risk/reward ratio is 2.2:1.

The zone of profit in the proposed trade covers a $4.50 move either way.

Decision for My Account

I have entered a position on IWM as described above.

-- Tim Bovee, Portland, Oregon, June 27, 2016


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

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading


Two social media feeds provide notification whenever something new is posted.

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.

Creative Commons 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

No comments:

Post a Comment