XLK Analysis

Technology Select Sector SPDR Fund (XLK)

Update 3/21/2020The normal course of my short iron condor position on XLK was disrupted after a short put leg of the position was assigned because it was in-the-money. The assignment put XLK long shares into my account. I sold the shares and exited the puts on March 13, and allowed the deep in-the-money calls to expire without value.

I entered the position in early February, before the crash. XLK rose to a peak on February 19, traded in a range for a day and then began a swift fall. The implied volatility rank was 79.1% at the exit, up 47.5 percentage points from the entry level.

In analyzing the results I calculated the options and the shares separately, and then combined them into a total result.

Overall, the options produced a $7.40 credit per contract/share, which added to the $1.30 credit at entry resulted in an $8.70 credit. The shares underlying the options opened exit day at $76.26 per share, down $23.40 from the entry level.

Those shares declined by 23.5% over 37 days for a -238% annual rate. The options position produced a 569.2% return for a 11235% annual rate.

The long shares of SMH were placed in my account after assignment for a $137.00 debit per share, and I sold them for a $116.5 credit, a loss of $20.42 per share, or $14.9%, a +5,615% annual rate.

The total return, options and shares, was a loss of $5.79 per share.


I have entered a short iron condor spread on XLK, using options that trade for the last time 44 days hence, on March 20. The premium is a $1.30 credit and the stock at the time of entry was priced at $99.87.

The profit zone for this position is between $105.30 on the upside and $89.30 on the downside.

The implied volatility rank (IVR) stands at 31.6.

Premium: $1.30 Expire OTM
XLK-iron condor Strike Odds Delta
Long 107.00 92.0% 8
Break-even 105.30 84.5% 15.5
Short 104.00 77.0% 23
Puts
Short 95.00 75.0% 24
Break-even 89.30 83.0% 16
Long 88.00 91.0% 8

The premium is 26.0% of the width of the position’s wings.

The profit zone covers a 5.4% move to the upside and an 11.8% move to the downside of the entry price, for total coverage of 17.3%

The risk/reward ratio is 2.8:1, with maximum risk of $370 and maximum reward of $130 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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Based on a work at www.timbovee.com.

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