XBI Analysis

SPDR S&P Biotech exchange traded fund (XBI)

Update 6/3/2019My short iron condor on XBI became profitable 18 days before expiration, and I exited at 17% of maximum potential profit, paying a $0.68 debit with shares trading at $80.92. The implied volatility rate stood at 38.9%, which is 10.4 points above the entry level.

At the exit shares were $6.10 below the entry point, and the options position had gained a $0.14 profit.

Perhaps it is the lack of falling IVR that caused XBI to remain unprofitable on my preferred exit day, 21 days before exit. XBI fell for much of my holding period but remained comfortably in the profit zone, that is, between the two breakeven points. It provides a test case for my new exit rules. Previously, my rule was to get out 21 days before expiration. The new rules keep me in the position, but in a “sudden death” posture: When it becomes profitable, I exit, no matter how small the profit.

In the case of XBI, it was a tidy sum, and waiting over the weekend proved to be the right way. Other cases will help tell whether XBI was typical or an outlier in its behavior.

Shares fell by 7.0% over 35 days, or a $73% annual rate. The options position produced a 20.6% return for a +215% annual rate.

I have entered a short iron condor spread on XBI, using options that trade for the last time 53 days hence, on June 21. The premium is an $0.82 credit and the stock at the time of entry was priced at $87.02.

The profit zone for this position is between $96.82 on the upside and $73.82 on the downside.

The implied volatility rank (IVR) stands at 28.

Premium: $0.82 Expire OTM
XBI-iron condor Strike Odds Delta
Long 100.00 95.0% 5
Break-even 96.82 90.5% 10
Short 96.00 86.0% 15
Short 77.00 93.0% 15
Break-even 73.82 92.0% 11.5
Long 73.00 91.0% 8

The premium is 20.5% of the width of the position’s wings.

The risk/reward ratio is 3.9:1.

By Tim Bovee, Portland, Oregon, April 29, 2019


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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