XBI Analysis

SPDR S&P Biotech exchange traded fund (XBI)

Update 3/4/2020My short iron condor position on XBI became minimally profitable 16 days before expiration, and I exited the position. The debit was $1.55 per contract share, down $0.05 from the entry debit, with shares trading for $91.68, which is $4.50 below their price at entry.

XBI was one of my holdings caught in the Coronavirus Crash that began February 19. The price of the underlying stock, along with most of the market, gapped to the downside on February 24 and kept on going, reaching turning point on February 28 and recovering about half of its loss. The put strike price for the position was $89. XBI moved above that on March 2.

The implied volatility rank rose by 25.4 points above its entry level, to 58.8%, as is to be expected in a rapidly declining market.

Shares showed a net decline of 4.9% over 28 days. The options position produced a 0.7% return for a 42% annual rate.

I have entered a short iron condor spread on XBI, using options that trade for the last time 44 days hence, on March 20. The premium is a $1.60 credit and the stock at the time of entry was priced at $96.18.

The profit zone for this position is between $105.60 on the upside and $82.60 on the downside.

The implied volatility rank (IVR) stands at 33.4%.

Premium: $1.60 Expire OTM
XBI-iron condor Strike Odds Delta
Long 110.00 96.0% 5
Break-even 105.60 89.0% 13
Short 104.00 82.0% 21
Short 89.00 78.0% 20
Break-even 82.60 86.0% 12.5
Long 81.00 94.0% 5

The premium is 22.9% of the width of the position’s wings.

The profit zone covers a 9.8% move to the upside and a 16.4% move to the downside of the entry price, for total coverage of 26.2%

The risk/reward ratio is 3.4:1, with maximum risk of $540 and maximum reward of $160 per contract.

By Tim Bovee, Portland, Oregon, February 5, 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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