Tuesday, September 20, 2016

EWW Analysis

Update 10/13/2016: EWW began to rise almost immediately after I opened the position four days before the first presidential debate of the 2016 election. The fund tracks the Mexican stock exchange, and the more Donald Trump's political fortunes fell, the more the Mexican market rose, quickly breaking past the upper boundary of the position's profit zone, and never looking back.

Who says politics doesn't matter!

Shares rose by 6.1% over 23 days, or a 97% annual rate. The options position produced a 50.0% loss on debit for a -793% annual rate.

The iShares MSCI Mexico Capped Exchange Traded Fund (EWW) closed Monday with implied volatility in the upper half of its one-year range and continues at that level today, qualifying it for a full analysis and perhaps a trade.

[Mexican Stock Exchange in Wikipedia]


I shall use the OCT series of options, which trades for the last time 37 days hence, on Oct. 21.


Implied volatility stands at 29%, which is 1.9 times the VIX, a measure of volatility of the S&P 500 index. EWW’s volatility stands in the 51st percentile of its annual range. The price used for analysis was $46.91.

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

The Trade

EWW has been in a downward wave since June 2013 and, in terms of Elliott wave analysis, is in the 4th wave of that decline, a sideways pattern called a flat.

Traders of the New Era
Expanded Edition
by Fernando and Leandro Oliveira

The present decline within that pattern began in mid-August and appears to be in the third wave of the decline in a movement that I see as being the 3rd wave decline out of five within the flat. If I'm wrong, then the 3rd wave is the final one of the movement.

Given that pattern, I shall choose a direction neutral structure for the trade, with some bias to the downside.

Iron condor, short the $49 calls and long the $50 calls,
short the $43 puts and long the $42 puts,
sold for a credit and expiring Oct. 22.
Probability of expiring out-of-the-money

The premium is $0.32, which is 32% of the width of the position’s wings.

The risk/reward ratio is 2.1:1.

The zone of profit in the proposed trade covers a $3 move either way.

Decision for My Account

I have entered a positon on EWW as described above. The price at time of entry was $46.84.

-- Tim Bovee, Portland, Oregon, Oct. 20, 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


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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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Based on a work at www.timbovee.com.

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