XLB Analysis

Materials Select Sector SPDR Fund (XLB)

Update 3/13/2020: I entered my short iron condor position on XLB prior to the Crash of 2020, and exited on March 13, a week before expiration, for a significant loss.

I exited for a $2.22 debit per contract share, a loss of $1.79, with shares trading for $45.24, down $15.60 from entry.

The markets generally began a sharp decline from their peak on February 19 at an unusually swift velocity. The implied volatility rank at exit was 90.2%, up 51.6 points from the entry level.

Shares declined by 34.4% over 37 days, or a -158% annual rate. The options position produced an 82.1% loss for a -570.4% annual rate.


I have entered a short iron condor spread on XLB, using options that trade for the last time 44 days hence, on March 20. The premium is a $0.43 credit and the stock at the time of entry was priced at $60.84.

The profit zone for this position is between $63.43 on the upside and $56.43 on the downside.

The implied volatility rank (IVR) stands at 45.4%.

Premium: $0.43 Expire OTM
XLB-iron condor Strike Odds Delta
Long 64.00 78.0% 12
Break-even 63.43 83.0% 17
Short 63.00 88% 22
Puts
Short 58.00 85.0% 24
Break-even 56.43 80.0% 19
Long 56.00 75.0% 14

The premium is 28.7% of the width of the position’s wings.

The profit zone covers a 4.3% move to the upside and a 7.8% move to the downside of the entry price, for total coverage of 12.1%

The risk/reward ratio is 2.5:1, with maximum risk of $107 and maximum reward of $43 per contract.

By Tim Bovee, Portland, Oregon, February 5, 2020

Disclaimer

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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