SPDR S&P Biotech ETF (XBI)

Update 5/13/2021: I exited my bear call spread position on XBI 36 days before expiration, for a $0.50 debit per contract/share, a profit before fees of $102 per contract. Shares were trading at $120.40, down $5.19 from the entry level.

My decision to exit was based on the profit exceeding 50% of its maximum potential, an exit point that is mandated by my rules for trading options spreads.

Shares declined by 4.1% over seven days for a -216% annual rate. The options position produced a 97.6% return for a 5,319% annual rate.

I’ve updated the chart below.

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I have entered a short bear call spread on XBI, using options that trade for the last time 43 days hence, on June 18. The premium is a $1.01 credit per contract share and the stock at the time of entry was priced at $125.59.

The implied volatility rank (IVR) stands at 49.2%.

Premium:	$1.01	Expire OTM
XBI-bear call spread	Strike	Odds	Delta
Calls
Long	140.00	85.0%	18
Break-even	133.99	80.5%	23
Short	135.00	76.0%	28

The premium is 40.4% of the width of the position’s wing.
The profit zone covers a 6.7% move to the upside, with no limit to the downside.

The risk/reward ratio is 4:1, with maximum risk of $399 and maximum reward of $101 per contract.

Elliott wave analysis. XBI hit a peak of February 9 of $174.79 and began a downtrend that is now in its 3rd wave. I set the short call at $135, which is $9.41 above the entry price. The 3rd wave, typically the strongest in a trend, began on March 16 from $149.24. Upon its completion, the 3rd wave will begin a 4th wave correction. Fourth waves tend to be shallow, sideways-trending movements, and so my theory is that any correction will remain well below the $135 short-call strike.

By Tim Bovee, Portland, Oregon, May 6, 2021

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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