XLK Analysis

Technology Select Sector SPDR Fund (XLK)

Update 7/17/2017: XLK began rising a few days after I entered the position, moving beyond the zone of profitability. I exited for a loss as options expiration approached.

Shares rose by 3.4% over 17 days, or a +73% annual rate. The options position produced a -23.9% loss on debit for a -514% annual rate.

XLK has sufficiently high implied volatility to qualify as a short-term direction neutral trade.

I shall use options that trade for the last time 21 days hence, on July 21.

Implied volatility stands at 17%, which is 1.6 times the VIX, a measure of the volatility of the S&P 500 index.

XLK’s IV stands in the 62nd percentile of its annual range and the 90th percentile of its most recent broad movement.

The price used for analysis was $54.93.

Premium: $1.43 Expire OTM  
XLK-iron fly Strike Odds Delta
Long 58.00 96.5% 4
Break-even 56.43
Short 55.00 52.2% 50
Short 55.00 47.8% 50
Break-even 53.43
Long 52.00 85.6% 13

The premium is 48% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

Decision for My Account

The options grid has a significant skew toward puts, making the trade structure a bit distorted. Even so, I have entered an order on XLK as described above. The stock at the time of entry was priced at $1.43.

By Tim Bovee, Portland, Oregon, June 30, 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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