Wednesday, November 2, 2016

IYR Analysis

Update 11/18/2016: IYR reached half of its potential profit and I exited.

Shares declined by 1.3% over 16 days, or a -29% annual rate. The options position produced a 100.0% yield on debit for a +2,281% annual rate

The iShares Dow Jones US Real Estate exchange traded fund (IYR) closed on Tuesday with implied volatility sufficiently high to warrant further analysis.

[IYR information]


I shall use the DEC series of options, which trades for the last time 44 days hence, on Dec. 16.


Implied volatility stands at 23%, which is 1.2 times the VIX, a measure of volatility of the S&P 500 index. IYR’s volatility stands in the 54th percentile of its annual range. The price used for analysis was $74.53.

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

IYR has been in an uptrend since February 2009. The present Elliott position can be interpreted as a side-swinging 4th wave correction, although there are, as always, ambiguities. The present downward movement began July 29.

I shall use a direction neutral structure for the trade.

A Complete Guide to Volume Price Analysis
by Anna Coulling

Iron condor, short the $78 calls and long the $79 calls,
short the $69 puts and long the $68 puts,
sold for a credit and expiring Dec. 17.
Probability of expiring out-of-the-money


The premium is $0.34, which is 34% of the width of the position’s wings.

The risk/reward ratio is 1.9:1.

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 IYR as described above. The stock at the time of entry was priced at $74.49.

-- Tim Bovee, Portland, Oregon, Nov. 2, 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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