XBI Analysis

SPDR S&P Biotech (ETF) (XBI)

Update 7/17/2017: XBI has traced a sideways pattern since I entered the position. Although options expiration is a month away, I exited to make room in my account for earnings plays, which tend to be higher velocity and more profitable. I exited at 12.3% of maximum potential profit, about half of my 25% target.

Shares rose by 0.5% over 12 days, or a 15% annual rate. Tye options position produced a 14.0% yield on debit for a +426% annual rate.

XBI has sufficiently high implied volatility relative to its most recent and annual ranges to qualify as a direction-neutral trade.

I shall use options that trade for the last time 44 days hence, on Aug. 18.

Implied volatility stands at 30%, which is 2.5 times the VIX, a measure of the volatility of the S&P 500 index.

XBI’s IV stands in the 27th percentile of its annual range and the 91st percentile of its most recent broad movement.

The price used for analysis was $78.27.

Premium: $5.13 Expire OTM  
XBI-iron fly Strike Odds Delta
Long 89.00 91.2% 10
Break-even 84.13
Short 79.00 52.5% 50
Short 79.00 46.7% 50
Break-even 74.13
Long 69.00 85.7% 12

The premium is 51% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

Decision for My Account

I have entered an order on XBI as described above. The stock at the time of entry was priced at $78.51.

By Tim Bovee, Portland, Oregon, July 5, 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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