IWM Analysis

iShares Russell 2000 (IWM)

This trading idea came from Dough trader Ryan.

I shall use the JAN06 series of options, which trades for the last time 31 days hence, on Jan. 6.

Implied volatility stands at 18%, which stands in the 16th percentile of its annual range. The price used for analysis was $221.22.

Ryan's trade differs from my normal practice in that implied volatility is low in relation to its annual range, and similarly low in relation to its most recent move. Here's his structure.

Iron condor, short the $132.50 calls and long the $137.50 calls,
short the $132.50 puts and long the $125.5 puts,
sold for a credit and expiring Jan. 7.
Probability of expiring out-of-the-money

JAN07	Strike	OTM	Δ
Upper	132.50	39.6%	62
Lower	132.50	58.3%	40

The premium is $3.83, which is 77% of the width of the position’s wings.

The risk/reward ratio is 0.8:1.

Decision for My Account

I have entered a position on IWM as described above. The shares at the time of entry were priced at $134.13.

-- Tim Bovee, Portland, Oregon, Dec. 6, 2016

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References

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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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.