FXI Analysis

iShares China Large-Cap ETF (FXI)

Update 1/4/2016: FXI fell over the period I held this position, and as expiration approached the trend was moving toward a loss. I exited for a profit, although a slim one, of 5.1% of the maximum potential.

Shares declined by 4.9% over 26 days, or a -69% annual rate. The options position produced a 1.5% yield on debit for a +22% annual rate.

This trade shadows one placed by Dough trader Ryan. It is similar to the iron fly positions I’ve put together with my own analysis. However, the implied volatility percentile is at extremely low levels, both for the past year and the most recent range, and trading such is outside of my usual practice.

I shall use the JAN series of options, which trades for the last time 42 days hence, on Jan. 20.

Implied volatility stands at 21%, which stands in the 2nd percentile of its annual range and at the bottom of its most recent broad move. The price used for analysis was $37.47.

Iron fly, short the $37 calls and long the $39 calls,

short the $37 puts and long the $35 puts,

sold for a credit and expiring Jan. 21.

Probability of expiring out-of-the-money

JAN Strike OTM Δ
Calls 37 40.7% 61
Strikes 37 54.2% 54

The premium is $1.32, which is 66% of the width of the position’s wings.

The risk/reward ratio is 0.5:1.

Decision for My Account

I have entered a position on FXI as described above. The stock at the time of entry was priced at $37.45.

— Tim Bovee, Portland, Oregon, Dec. 9, 2016

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