XLK Analysis

Technology Select Sector SPDR Fund (XLK)

XLK stands at a high level of implied volatility compared to its most recent trend and so is worth looking at more closely as a potential trade.

I shall use options that trade for the last time 10 days hence, on June 23.

Implied volatility stands at 15%, which is 1.4 times the VIX, a measure of the volatility of the S&P 500 index.

XLK’s IV stands in the 44th percentile of its annual range and the 50th percentile of its most recent broad movement.

The price used for analysis was $55.92.

Premium: $0.86 Expire OTM  
XLK-iron fly Strike Odds Delta
Long 57.50 92.7% 8
Break-even 56.86
Short 56.00 52.4% 49
Short 56.00 48.3% 51
Break-even 54.86
Long 54.00 85.8% 13

The premium is 49% of the width of the position’s wings.

The risk/reward ratio is 1.3:1.

Decision for My Account

The position I can build with the XLK grid gives me a degree of risk that is higher than I prefer. I normally go no higher than 1.2:1, and my preference is 1.1:1 or less. This trade, at 1.3:1, is a tenth of a point too high. I’m passing on it. No trade.

By Tim Bovee, Portland, Oregon, June 13, 2017


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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