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.

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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%.

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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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2:50 p.m. New York time

I’ve exited my share position in PNW for a $98.13 credit, up $6.47 per share from the entry price, producing a 7.9% return over 21 days, or an 138% annual rate.

PNW was part of the now defunct Utilities Portfolio originally. I moved it to the Bench in order to capture the $0.7925 per share dividend, which is included in the return. PNW at this point has a sell (4) score from Zacks.

And it’s departure clears the Bench.

1:20 p.m. New York time

I’ve updated XBI Analysis with results.

11:35 a.m. New York time

I exited my XBI short iron condor this morning for 12.3% of maximum potential profit. I shall update the analysis with results later today.

Two of my short iron condor options positions have options that are in the money. If they are still ITM in expiration week, which begins February 17, then I shall exit the leg at risk of assignment.

• The EEM and XLE short iron condors are in the money on the put side. Exiting the short and long puts would leave bear call spreads for the last few days before expiration.
• TLT and XLK are in the money on the call side. Exiting the calls leaves bull put spreads.

Assuming they remain out of the money, the spreads would expire without value, for maximum profit.

The XLI and XLK short iron condors remain out of the money, although, like everything else, that could change.

On the shares side of my trading, I’ve ended my experiment with trailing stop/loss based on a multiple of the Wilder’s Average True Range, reverting to a trailing 20% stop/loss. A study of the January trades using double the ATR showed about a 50% chance each of an position rising after exit or falling with a double ATR trailing stop.

The tighter stop produced many more trades, resulting from stopped positions, than the 20% trailing did. I’m seeing little advantage from a lot more work. So I’ll set an stop with enough distance to reduce the likelihood of a triggered sale, yet close enough to my entry point so as to not break the bank if things go seriously wrong.

With the more forgiving stop/loss strategy, I had no positions stopped this morning. I entered three positions in today’s focus portfolio.

Stock Trades

• Genetics Portfolio
  • Entries
    • AAPL, for a $312.08 debit.
    • GH, a $76.14 debit.
    • RUBY, a $7.81 debit.

By Tim Bovee, Portland, Oregon, February 3, 2020

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4:05 p.m. New York time

And the markets close, with no fill on my exit order for the XBI short iron condor.

3:25 p.m. New York time

I’ve updated my XLV short iron condor analysis with results.

3 p.m. New York time

My exit order on my short iron condor on XLY was filled, and I’ve updated the analysis with results.

XLV was just filled, and I shall turn to that next. I also have an exit order on XBI for 4.7% of maximum potential profit, yet unfilled.

1:10 p.m. New York time

Two more stop/losses on stocks were triggered, both of them set at double the Wilder Average True Range.

• Growth Portfolio
  • Exit
    • RH, for a $212.26 credit, down $10.90 per share from the price at entry, producing a 4.9% loss over 10 days for -178% annual rate.
• Genetics
  • Exit
    • SYRS, a $6.81 credit, down $1.61, for a 19.1% loss over 17 days, a -411% annual rate.

11:20 a.m. New York time

We’re 21 days out from expiration of my current options series, and by rules, this is when I cash in my winners. I include trading fees in determining whether or not a position is winning.

All of my positions are short iron condors expiring February 21.

I’ve placed exit orders on  XLV and XLY, the only two clear winners in the batch. No fills as of yet. XLV is at 19% of maximum potential profit, and XLY, at 9%.

XLI is a penny below the credit I received at entry, which places it at 2.2% of maximum potential profit, without considering fees. I’m going to treat it as a loser today and see what develops.

The absolute losers, at present, are EEM, TLT, XBI, XLE and XLK. Two of them, EEM and XLE, are below their profit ranges, and TLT is above its profit range.

The positions I don’t exit today move to sudden death mode, meaning that I sell them when they become profitable enough to at least cover my trading fees.

I’ll have results on the two that I’m exiting today as soon as the orders are filled.

10:40 a.m. New York time

Today’s focus portfolio for stocks is Growth.

I exited three positions today, two of them — KBH and GPX — through a stops. I entered three positions in the in the Growth Portfolio.

Stock Trades

• Growth Portfolio
  • Entries
    • AMED, for a $181.33 debit.
    • IBTX, a $53.64 debit.
    • PHM, a $45.52 debit.
• Value Portfolio
  • Exits
    • GPX, for a $13.77 credit per share, down $1.19 from entry for a 8.0% loss over 14 days, a -207% annual rate.
    • SANM, a $32.14 credit, down $1.09 from entry, producing a 3.3% loss over two days for a -597% annual rate.
• Momentum Portfolio
  • Exit
    • KBH, for a $38.11 credit, down 55 cents from entry for a 1.4% loss over three days, a -173% annual rate.

By Tim Bovee, Portland, Oregon, January 31, 2020

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1:10 p.m. New York time

I manage my options 21 days before expiration, a practice shown to increase the likelihood of a winning trade, according to research conducted by the financial network TastyTrade. What it means practically is that tomorrow — Friday — I shall be exiting my profitable positions built from options expiring February 21, and setting the stops for the unprofitable positions to the price that would make them profitable enough to cover trading fees.

I have eight short iron condor positions built from the Februaries that will be up for management. XBI, XLI, XLV and XLY are profitable today. Two of the unprofitable positions, EEM and XLE, are below their profit zones, and two others, TLT and and XLK, are above.

Heretofore it has been unusual for half of my positions to remain open past Management Day.

It was a somewhat volatile day for my share holdings, with three positions — WCC, SNX and AES — hitting their stop/losses, and four ceasing to qualify for their portfolios. The focus portfolio today was Robotics, and I added three positions.

Stock Trades

• Value Portfolio
  • Exits
    • OVV, for a $15.86 credit per share, down 93 cents from entry, resulting in a 5.5% loss over one day for a -2,011% annual rate.
    • WCC, a $50.58 credit, down $3.45 from entry, a 6.4% loss over six days for a -389% annual rate.
    • SNX, for a $136.34 credit, down $8.15 from entry, producing a -5.6% loss over six days for a -343% annual rate.
• Momentum Portfolio
  • Exits
    • ELVT, a $5.61 credit, up 69 cents from entry, a 14.0% return over three days, or a 1,699% annual rate.
    • SEM, a $23.38 credit, down 95 cents from entry, a 3.9% loss over one day for a -1,425% annual rate.
• Genetics and Robotics portfolios
  • Exit
    • AAPL, for a $320.69 credit, up $6.83 from the price at entry, producing a 2.2% return over two days, or a 397% annual rate.
• Robotics Portfolio
  • Entries
    • SNPS, for a $149.13 debit per share.
    • SPLK, a $156.86 debit.
    • TCEH, a $48.19 debit.
• Utilities Portfolio
  • Exit
    • AES, which, after becoming disqualified from its portfolio, had been on the Bench awaiting an ex-dividend date, for a $19.98 credit, down 34 cents from entry, for 1.7% loss over 17 days, a -36% annual rate.

By Tim Bovee, Portland, Oregon, January 30, 2020

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2:40 p.m. New York time

I’ve entered an additional stock position, in  SEM, to fill the position held by FRTA, which I exited today. I bought SEM for a debit of 24.33 per share.

11:40 a.m. New York time

In stocks, today’s focus portfolio is Value, and I entered three positions. I also exited one position each from Momentum and Robotics as they no longer qualified.

Stock Trades

• Value Portfolio
  • Entries
    • BRY, for a $6.98 debit per share.
    • OVV, a $16.79 debit.
    • SANM, a $33.23 debit.
• Momentum Portfolio
  • Exit
    • FRTA, a two-day whipsaw, for a credit of $13.71 per share, down 61 cents from the entry price, producing a 4.3% loss over two days for a -777% annual rate. There was no obvious news to explain the drop.
• Robotics Portfolio
  • Exit
    • ADSK, a $199.49 credit, up $3.11 from entry, producing a 1.6% return over one day for a 579% annual rate.
  •  Entry
    • TSM, a $57.11 debit.

By Tim Bovee, Portland, Oregon, January 29, 2020

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10:30 a.m. New York time

My options positions, which will reach Management Day on Friday, have improved considerably since yesterday’s market-wide decline. Out of eight positions expiring in February, four are profitable and, if that continues, will be sold on Friday. Four are unprofitable, and I’ll hang on to each of them until it becomes profitable or we’re close to expiration. Only one of the four, XLE, is beyond its profit zone. The underlying is trading for $55.53 at present, and the put strike is at $56.21.

The positions, all of them short iron condors, are on EEM, TLT, XBI, XLE, XLI, XLK, XLV and XLY.

In stocks, today’s focus is on the Genetics Portfolio. There were no exits. I opened five new positions in several portfolios, taking care to ensure that each was in an uptrend as well as meeting my other criteria. In terms of portfolios, the new positions are all over the map.

Stock Trades

• Genetics Portfolio
  • Entries
    • AAPL, for a $313.86 debit per share.
    • EDIT, a $28.99 debit.
• Robotics Portfolio
  • Entries
    • ADSK, a $196.38 debit.
• Momentum
  • Entries
    • KBH, a $38.66 debit.
• Income
  • Entries
    • JCAP, a real estate investment trust with a buy score from Zacks and a 7% dividend, for a $20.02 debit.

By Tim Bovee, Portland, Oregon, January 28, 2020

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