Live: Tuesday, July 2, 2019

4:35 p.m. New York time

Neither of my remaining entry orders was filled. I’ll look again at KRE and XLP on Wednesday.

2:45 p.m. New York time

I took a look at a short iron condor on IYR as a potential trade but couldn’t work it into a risk/reward ratio I liked. So I’ve passed on it. Its IV rank is 20.9; not spectacular. I was working with short options at $93 on the calls and $84 on the puts, with varying wing widths.

2:05 p.m. New York time

I’ve entered a short iron condor on EWZ, with short calls at $48 and short puts at $39. The order was filled for $0.50 credit.

1:45 p.m. New York time

I’ve placed an order for a short iron condor on KRE, with short calls at $57 and short puts at $59, with $2 wide wings. My asking price is $0.38.

1:05 p.m. New York time

I’ve placed an order for a short iron condor on XLP, with short calls at $62 and puts at $56, with $1 wide wings. My asking price is $0.20.

12:40 p.m. New York time

I’ve entered a short iron condor position on XBI.

11:20 a.m. New York time

I’ve entered a short iron condor position on GDXJ.

10:50 a.m. New York time

Having sold off the last of my July options yesterday, it’s now time to fill my trading accounts with options expiring in August, on the 16th. It’s not going to be an easy task. The problem is volatility.

In working through potential trades this morning, I’m finding that individual stocks are for the most part blocked by earnings announcements. I avoid earnings days because of the vast uncertainty they bring. The liquid stocks without earnings coming  up generally have prices below $10, which I don’t like to trade because their options grids tend to be hard to work with and the need for more contracts in a trade increases the fees.

The remaining prospects are exchange-traded funds, and such funds tend to have lower volatility, for the most part. TastyTradewhich has been a huge influence on my trading rules, focuses on implied volatility rank  (IVR) in assessing implied volatility. The IVR gives a level playing field allowing the trader to assess IV in terms of the volatility history of the symbol.

IVR is calculated like this:

100 x (the current IV level – the 52 week IV low) / (the 52 week IV high – 52 week IV low) = IV Rank

That formula, and an important essay on IVR, can be found here on the TastyTrade site.

IVR is important because of its influence on the premium I get from selling short iron condors, my preferred trade. The higher the IVR, the the greater the credit I get from selling. Best case scenario: The IVR falls during my holding period, and when I buy back the short positions positions, I can do so for a cheaper price. It’s the old adage always near to the hear to short sellers: Sell high, buy low. In the case of options trading, it’s the IVR we’re selling and buying back.

Long-time readers of Private Trader will recall that I used to require an implied volatility rank of 50% or greater. The TastyTrade crew awhile back said they prefer IVR of 25% or greater, and I switched to that.

But there’s a downside: When IVRs across the markets become low, a hard-and-fast 25% or greater rule excludes most trades I would otherwise are to take. So as an experiment, for the August options, I’ll add some lower IVRs to the mix of symbols I analyze. I rule-of-thumb, for this month at least, will be: the IVR of the symbol I’m analyzing must be equal to or greater than the IVR of SPY, the exchange-traded fund that tracks the S&P 500.

SPY presently has an IVR of 14.1%

So, under that experimental rule, here’s the list from which I shall pick my potential trades, along the the IVR of each symbol and its sector:

  • GDXJ, 81.7%, metals
  • OIH, 37.0%, fossil fuels
  • XLP, 33.7%, consumer staples
  • IYR, 32.7%, real estate
  • XOP, 22.7%, fossil fuels
  • KRE, 21.7%, regional banks
  • XBI, 19.3%, biotech
  • EWZ, 18.9%, brazil
  • IWM, 16.7%, russel 2000
  • And the boundary, SPY, 14.1%, s&p 500

So, first, some breakfast, and then, let the analysis begin!

By Tim Bovee, Portland, Oregon, July 2, 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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