12:50 p.m. New York time

OK. I’m done. I’m passing on both TLT and EEM, for the same reason: The economic impact of the Wuhan corona virus. The geopolitical analysis people at Stratfor say that we won’t know until mid-February or so just what magnitude of event we’re undergoing: Maybe a blip brought quickly under control, maybe a global pandemic with a low death rate, maybe a spike with a high death rate. We’ll know in time for the April options, but not the March series.

EEM is essentially China, and TLT is essentially the world’s assessment of the U.S. economy, and so both are intimately tied to the impact of Wuhan. No trade for those two, not now, at least.

12:50 p.m. New York time

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

12:30 p.m. New York time

I’ve entered a short iron condor position XLP. Not an entirely comfortable trade. It gives good 30% coverage to the wings width. The difficulty is the structure of the trading grid. I normally set my short legs at around 20 delta and the long wings at around 12 delta. For the calls on XLP, the best I can do for the short leg is 20 delta, and the next strike down is 11 delta, which leaves me less than $3 out of the money for the long leg. At any rate, as Uncle Julius used to say, “The die is cast.”

12:05 p.m. New York time

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

10:10 a.m. New York time

In stocks, I added two positions to today’s focus portfolio, Robotics, and transferred one position to the Bench.

• Robotics Portfolio
  • Entries
    • KMTUY, for a debit of $22.51.
    • TER, a $71.15 debit.
• Value Portfolio
  • Benched
    • MOD, after its Zacks rank dropped from strong buy (1) to buy (2).

In options, by my rules this is the last day to enter new positions using contracts that expire on March 20.

Yesterday I entered short iron condor positions on QQQ, XBI, XLB, XLI, XLK and XLV. I passed on XLP, XLU and XLE because the positions I built has insufficient potential profit to provide a reasonable risk.

I shall look at them again, especially XLE, because I presently have no exposure to energy in my March plays. Also lacking is exposure to the financial sector, whose exchange-traded fund, XLF, has an implied volatility rank below 30%, which is too low for my taste. Also, I have no exposure to gold, whose volatility is low.

Other possibilities with sufficiently high volatility: SMH (semiconductors), EEM (emerging markets, which is one third China and one half East Asia), and TLT (long-term U.S. bonds).

I’m passing on EEM because of uncertainty surrounding the Wuhan coronavirus. Basically, we don’t yet know what we’re facing.

I’ve traded TLT options four times and only once, last September, did it turn out to be a losing trade. So I’ll add that to my check-it-out list,

The Maybe List: XLP, XLU, XLE, SMH, TLT.

A fun day ahead.

By Tim Bovee, Portland, Oregon, February 6, 2020

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Technology Select Sector SPDR Fund (XLK)

Update 3/21/2020: The 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

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The Industrial Select Sector SPDR Fund  (XLI)

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

I exited for a $2.04 debit per contract share, a loss of $1.60, with shares trading for $61.38, down $22.49 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 90.0%, up 57.2 points from the entry level.

Shares declined by 36.6% over 37 days, or a -228% annual rate. The options position produced an 80.1% loss for a -501% annual rate.

---

I have entered a short iron condor spread on XLI, using options that trade for the last time 44 days hence, on March 20. The premium is a $0.44 credit and the stock at the time of entry was priced at $83.87.

The profit zone for this position is between $87.44 on the upside and $78.44 on the downside.

The implied volatility rank (IVR) stands at 32.8%.

Premium:	$0.44	Expire OTM
XLI-iron condor	Strike	Odds	Delta
Long	88.00	86.0%	15
Break-even	87.44	82.0%	18.5
Short	87.00	78.0%	22
Puts
Short	80.00	77.0%	22
Break-even	78.44	81.0%	18
Long	78.00	85.0%	14

The premium is 29.3% of the width of the position’s wings.

The profit zone covers a 4.3% move to the upside and a 6.9% move to the downside of the entry price, for total coverage of 11.2%

The risk/reward ratio is 2.4:1, with maximum risk of $106 and maximum reward of $44 per contract.

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

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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

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SPDR S&P Biotech exchange traded fund (XBI)

Update 3/4/2020: My 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
Puts
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

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The Health Care Select Sector SPR Fund (XLV)

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

I exited for a $2.50 debit per contract share, a loss of $1.99, with shares trading for $88.04, down $15.90 from entry.

The markets generally began a sharp decline from their peak on February 19 at an unusually swift velocity. The implied volatility rate at exit was 90.3%, up 47.4 points from the entry level.

Shares declined by 18.1% over 37 days, or a -161% annual rate. The options position produced an 79.6% loss for a -609% annual rate.

---

I have entered a short iron condor spread on XLV, using options that trade for the last time 44 days hence, on March 20. The premium is a $0.51 credit and the stock at the time of entry was priced at $103.94

The profit zone for this position is between $107.84 on the upside and $96.84 on the downside.

The implied volatility rank (IVR) stands at 42.6.

Premium:	$0.51	Expire OTM
XLV-iron condor	Strike	Odds	Delta
Long	108.33	86.0%	14
Break-even	107.84	82.5%	17.5
Short	107.33	79.0%	21
Puts
Short	99.00	79.0%	21
Break-even	96.84	83.0%	17
Long	96.33	87.0%	13

The premium is 27.8% of the width of the position’s wings.

The profit zone covers a 3.8% move to the upside and a 7.3% move to the downside of the entry price, for total coverage of 11.1%

The risk/reward ratio is 2.6:1, with maximum risk of $132.50 and maximum reward of $51 per contract.

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

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Invesco Powershares QQQ (QQQ)

Update 3/21/2020: My short iron condor option position QQQ wrapped up in several steps: I exited the call options, one of which was in the money and so vulnerable to assignment, on March 13, and let the put options expire after the closing bell on March 20. I had entered the position before the market crash began.

The options position overall went for a $4.95 debit, a loss of $3.97, with shares having opened the day at $181.74, down $45.80 from their price at entry.

QQQ, like most of the market, rose steadily from entry until February 19, when it peaked. It fell slightly the next day, and thereafter picked up speed in its decline. The implied volatility rank was 73.1% at exit, up 42.8 percentage points from the entry level.

Shares declined by 20.1% over 44 days, or a -552% annual rate. The options position produced a -81.0% loss for an annual rate of -665%.

---

I have entered a short iron condor spread on QQQ, using options that trade for the last time 44 days hence, on March 20. The premium is a $0.98 credit and the stock at the time of entry was priced at $227.50.

The profit zone for this position is between $238.98 on the upside and $210.98 on the downside.

The implied volatility rank (IVR) stands at 30.3%.

Premium:	$0.98	Expire OTM
QQQ-iron condor	Strike	Odds	Delta
Long	240.00	87.0%	14
Break-even	238.98	84.5%	16.5
Short	238.00	82.0%	19
Puts
Short	215.00	79.0%	20
Break-even	210.98	82.0%	17
Long	210.00	85.0%	14

The premium is 28.0% of the width of the position’s wings, a bit narrower than I like.

The profit zone covers a 5.0% move to the upside and a 7.8% move to the downside of the entry price, for total coverage of 12.9%

The risk/reward ratio is 2.6:1, with maximum risk of $252 and maximum reward of $98 per contract.

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

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3:20 p.m. New York time

I’ve entered a short iron condor position on XLK. And that’s a wrap for the day. I still have some funds so I’ll poke around tomorrow and see what I can find.

3:05 p.m. New York time

I passed on XLP because I couldn’t construct a position that would give me enough return to be worthwhile. I analyzed XLE and placed a trade, but I haven’t gotten a fill and lowering the ask would reduce my profit more than I’m willing to do. So I shall let it sit and either be filled at my price or expire unfilled. It’s up to the market.

2:55 p.m. New York time

XLI short iron condor filled.

2:35 p.m. New York time

XBI short iron condor filled.

2:30 p.m. New York time

XLV short iron condor filled.

2:11 p.m. New York time

QQQ short iron condor filled and the analysis has been posted.

2:10 p.m. New York time

OK. I have orders in for short iron condors expiring March 20 on these symbols: XLE, XLB, XLV, XLP, XLI, XBI and QQQ. It’s the first time in a long time that I’ve seen the Qs with enough volatility to support one of my options plays.

No fills on any of them, so I shall spend the rest of the session seeing if I can rectify that.

12:30 p.m. New York time

Yesterday was entry day for my short iron condor options positions expiring March 20. However, I still have four live February 21 positions, so I had to wait a day for funds to clear into TastyWorks, the brokerage I mainly use for options trading. Low cost, great interface.

So I shall be jumping into the March positions today. Happily, compared to prior months, implied volatility is up, and I have a rich number of ETFs to choose from. Onward.

10:20 a.m. New York time

In my short iron condor options positions, EEM returned to profitability today. However, it’s still not a low enough debit to cover my costs, so I shall take no action today.

In stocks, I entered one new position in today’s focus portfolio, Growth, and moved one one position, from Robotics, to the Bench

Stock Trades

• Growth Portfolio
  • Entry
    • SNX, for a $142.43 debit.
• Robotics Portfolio
  • Benched
    • SNPS, which ceased to qualify for the portfolio because the Zacks rank dropped from 2 (buy) to 3 (hold). It qualifies for the Bench, however, because at least one of the strategy scores is A, B or C. In this case, the Momentum score is A. SNPS at entry was trading at $149.13/share and was benched with the price at $155.81. Under my rules, if the rank moves below 3 or all of the strategy scores are worse than C, the SNPS will lose its spot on the Bench and be sold.

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

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I’ve revised my trading rules for shares to include changes in practice I’ve made over the past few weeks. These rules, as well as those for options, are available from the Trading Rules tab at the top of any page.

Mid-Risk: Share Trades

This strategy relies on a rule-based evaluation for the selection of stocks and on a 20% trailing stop/loss for the exit signal.

I divide my holdings and trading decisions into portfolios, depending upon the method used to evaluate potential additions.

My portfolios are divided into two sorts.

Strategy portfolios use a search of a category of stocks for a symbol that meets certain criteria corresponding with a strategy. I have three strategies that I use:

• Growth, which relies on ratings changes given my market analysts.
• Momentum, which relies on the rate of change over several lengths of time.
• Value, which relies on the financial performance of the company compared to the price of its stock.

A second sort of portfolio, a watchlist portfolio, takes a relatively small list of stocks and trades those that meet general criteria according to one system or another.

For example, my Genetics Portfolio was constructed based on the ARKG exchange-traded funds holdings.

Depending upon the rules, all of this can be done by the trader without relying on the analysis of others. For convenience, I’ve chosen to rely on the analysis aggregator Zacks  to provide the ratings of stocks that I use in making decisions.

Zacks uses analyst ratings on their primary method, using earnings forecasts to select from their already screened pool. Their method boils everything down to a numerical rank: 1 for strong buy, 2 for buy, 3 for neutral, 4 for sell and 5 for strong sell. The rating is relative: The top 5% of their stock pool gets a 1 ranks, as does the bottom 5%. The 2 and 4 ranks each get 15% of the pool, and the 3 rank gets the remaining 60%. So the ranks aren’t objectively good or bad, but only in relation to the rest of the approximately 10,000 stocks the company tracks.

For my strategy portfolios, I require that stocks have a Zacks rank of 1 for entry, and I exit that day if it drops away from the strong buy level. For my watchlist portfolios, I’ll requires a Zacks 1 or 2 rank for entry, with exit rules if that changes to a neutral or sell rank.

Trading Rules

Entry

1. When the Zacks criteria are met.
   1. Strategy portfolios, which are the results of queries into the Zacks database: When the stock appears on the screening, meaning it matches all of my search criteria.
   2. Watchlist portfolios, which are lists of stocks: When a stock on the watchlist has a Zacks rank of 1 or 2.
   3. Income portfolios: When the fund has a Zacks rank of 1, 2 or 3.

Exit

1. Set a trailing stop/loss for each position of 20%.
2. A position that fails to qualify for its portfolio is benched if
   1. the Zacks rank is 1 or 2 (strong buy or buy).
   2. the rank is 3 (hold) and, in the case of a Value, Growth or Momentum portfolio, the corresponding strategy score is A, B or C. (the scale runs from A — best — down to F — worst).
   3. the rank is 3 and, in the case of a watchlist portfolio, such as Genetics or Robotics, the corresponding strategy score for Momentum  and Growth is A, B or C.
3. Otherwise, the Portfolio is exited.

Note that the 20% trailing stop rule was based on three research papers:

Han, Yufeng and Zhou, Guofu and Zhu, Yingzi, Taming Momentum Crashes: A Simple Stop-Loss Strategy (September 24, 2016). Available at SSRN: https://ssrn.com/abstract=2407199 or http://dx.doi.org/10.2139/ssrn.2407199

Yusupov, Garib and Shorrason, Bergsveinn, Performance of Stop-Loss Rules vs. Buy-and-Hold Strategy (2009). Available at Lund University: https://www.lunduniversity.lu.se/lup/publication/1474565

Kaminski, Kathryn and Lo, Andrew W., When Do Stop-Loss Rules Stop Losses? (January 3, 2007). EFA 2007 Ljubljana Meetings Paper. Available at SSRN: https://ssrn.com/abstract=968338 or http://dx.doi.org/10.2139/ssrn.968338

The Zacks rank method presents trades almost every day, as stocks fail to qualify and new stocks qualify to take their place. A no-commission brokerage, which includes the pioneering Robinhood and the major brokerages such as E-Trade and TD Ameritrade that have followed in Robinhood’s footsteps, makes such rapid trading possible. A brokerage that charges commissions would require a different approach.

Zacks makes its ranks for individual stocks freely available, and that is sufficient for managing a small watchlist portfolio.

For example, in creating my Genetics Portfolio, I took the holdings of the ARKG exchange-traded fund — 37 stocks — and within Zacks created a portfolio containing those symbols. The portfolio includes up-to-date rankings for each symbol. Just by pulling up the portfolio and sorting on rank, I can instantly see what the tradable stocks are and compare it with what I already hold. At this writing I hold all nine qualifying stocks.

For my strategy portfolios, which scans the entirely of the massive Zacks stock pool, it’s necessary that I be able to run queries against their databased, and for that I need a premium account, costing an annual subscription of $249. Traders with small accounts will do better by using the watchlist method, thereby avoiding the overhead.

The subscription works out to $20.75 a month, and I’ve entered about 30 positions in the current month, so divide by 60 — once for entry and again for exit — and it works out to a 35 cent premium per trade. Not such a bad deal, considering that in the bad old days of last spring, the commissions would have been at least $13 total for each position.

By Tim Bovee, Portland, Oregon, February 4, 2020

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11:40 a.m. New York time

I exited my short iron condor options position on XLI and have updated the the analysis with results.  Of the remaining options positions expiring February 21XLE and XLK have in-the-money components, putting them at risk of early assignment, and EEM and TLT are both out of the money.

In stocks trading, the focus portfolio today is Value, and I entered two positions. I also exited a position from Genetics.

I’m making more use of the Bench for positions that have dropped off their portfolios but still have potential value. The result, I hope, will be to reduce the churn in my holdings while maintaining profitability. January was profitable, with 104 completed trades, but I would have done better and had less work with 13-week Treasury Bills.

The rules go like this:

A position that fails to qualify for its portfolio is benched if

• • • the Zacks rank is 1 or 2 (strong buy or buy).
    • the rank is 3 (hold) and, in the case of a Value, Growth or Momentum portfolio, the corresponding strategy score is A, B or C. (the scale runs from A — best — down to F — worst).
    • the rank is 3 and, in the case of a watchlist portfolio, such as Genetics or Robotics, the corresponding strategy score for Momentum  and Growth is A, B or C.

Otherwise, the Portfolio is exited.

 Stock Trades

• Value Portfolio
  • Entries
    • IMTKA, for a $42.83 debit.
    • MOD, a $7.87 debit.
• Genetics
  • Exit
    • RUBY, for a $7.81 credit, for a 23 cent profit per share. The return was 2.9% over one day for a 1,066% annual rate. RUBY’s Zacks rank had dropped to 3 (hold). The score for Momentum was C, which is acceptable, but for Growth was F, which pushed the position into the sell category.
  • Growth
    • Benched
      • AMED was transferred to the Bench, with a Zacks rank of 2 (buy) and a Growth score of A.
  • Momentum
    • Benched
      • CYH, rank of 1 (strong buy), Momentum score C.
  • Robotics
    • Benched
      • SPLK, rank of 1 (strong buy), Growth score of D, Momentum Score F. Note that despite the awful scores, under my rules I kept the position because of the high Zacks rank.

By Tim Bovee, Portland, Oregon, February 4, 2020

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