XLE Analysis

The Energy Select Sector SPDR ETF (XLE)

Update 2/22/2020I’ve exited my short iron condor position on XLE for $1.11 per contract/share, a loss of 71 cents, with shares trading at $54.30, down $5.13 from the entry price. I unwound the position in two moves, first buying back the short put spread, which was in the money and so prone to exercise, and then allowing short call spead to expire without a profit, leaving the partial results unchanged.

XLE began a constant fall six days after I entered the position, reaching a point around the short put strike price once it settled. The implied volatility rank stood at 40.5% at exit, which is 8.8 points above the entry level. Short option trades anticipate a decline in the IVR because it contributes to the profit. Not so in this case.

The options position produced a 64.0% loss over 41 days for a -569% annual rate.

I have entered a short iron condor spread on XLE, using options that trade for the last time 43 days hence, on February 21. The premium is a $0.40 credit and the stock at the time of entry was priced at $59.43.

The profit zone for this position is between $62.40 on the upside and $55.40 on the downside.

The implied volatility rank (IVR) stands at 31.7%.

Premium: $0.40 Expire OTM
XLE-iron condor Strike Odds Delta
Long 63.21 87.0% 14
Break-even 62.40 83.0% 18.5
Short 62.00 79.0% 23
Short 56.21 77.0% 21
Break-even 55.40 81.0% 17.5
Long 55.00 85.0% 14

The premium is 33.1% of the width of the position’s wings.

The profit zone covers a 5.0% move to the upside and a 7.3% move to the downside of the entry price, for total coverage of 12.3%

The risk/reward ratio is 2.0:1, with maximum risk of $81 and maximum reward of $40 per contract.

By Tim Bovee, Portland, Oregon, January 9, 2020


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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