4:30 p.m. New York time

My XLB order went unfilled. I was unwilling to lower my ask. Tomorrow, perhaps.

1:35 p.m. New York time

I’ve entered an order for a short iron condor on XLB, expiring June 21. The shorts are the $59 call and $51 put, and the longs are the $61 call and the $49 put. Asking for a $0.33 credit.

11:20 a.m. New York time

The exchange-traded fund XLB has reached the 30% implied volatility rank, high enough to be interesting. I’ll take a look at it as a potential trade today.

By Tim Bovee, Portland, Oregon, May 2, 2019

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iShares U.S. Real Estate ETF (IYR)

Update 5/24/2019: Ninth try is the charm. I exited IYR after attempting in nine sequential market sessions to get a fill on my order at 50% of maximum potential profit, my exit target, with a bid price of $0.19. One sticking point was that a leg of the short iron condor had become valueless. 

The fill came for a $0.19 return on the position. Shares were trading at $88.45 at the fill, up $1.35 from their entry price. The implied volatility rank declined by nine points, to 29, helping to bring the position to its profitable exit point.

The stock price meandered on a sideways course, reaching a high of $88.52 on May 16 and then exceeding that on the day my exit order was was filled, with a high of $88.56. In other words, it was a perfect short iron condor position: Little price movement, giving Theta time decay and a declining IV rank time to do their work.

Shares rose by 1.6% over 23 days, or a 25% annual rate. The options position produced a 100.0% return for a 1,587% annual rate.

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I have entered a short iron condor spread on IYR, using options that trade for the last time 51 days hence, on June 21. The premium is a $0.38 credit and the stock at the time of entry was priced at $87.10.

The profit zone for this position is between $91.38 on the upside and $79.38 on the downside.

The implied volatility rank (IVR) stands at 35.

Premium:	$0.38	Expire OTM
IYR-iron condor	Strike	Odds	Delta
Long	93.00	93.0%	6
Break-even	91.38	88.0%	10.5
Short	91.00	83.0%	15
Puts
Short	82.00	85.0%	15
Break-even	79.38	88.5%	11.5
Long	79.00	92.0%	8

The premium is 15.2% of the width of the position’s wings.

The risk/reward ratio is 5.6:1.

By Tim Bovee, Portland, Oregon, May 1, 2019

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UnitedHealth Group Inc. (UNH)

Update 5/31/2019: I exited UNH 21 days prior to expiration, for a $1.64 debit, producing a $0.64 profit per share, with stock shares trading at $240.23, or $6.53 above the entry point. The exit came at 28% of maximum potential profit, below my 50% target. The implied volatility rank at exit was 37%.

Shares rose in two steps to a peak of $251.18 during my holding period, and then dropped off for a week as exit approached.

Shares rose by 2.8% over 30 days, or a 34% annualized rate. The options position produced a 39.0% return for a 475% annualized rate.

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I have entered a short iron condor spread on UNH, using options that trade for the last time 51 days hence, on June 21. The premium is a $2.28 credit and the stock at the time of entry was priced at $233.70.

The profit zone for this position is between $260 on the upside and $210 on the downside.

The implied volatility rank (IVR) stands at 46.

Premium:	$2.28	Expire OTM
UNH-iron condor	Strike	Odds	Delta
Long	270.00	96.0%	4
Break-even	262.28	87.5%	13
Short	260.00	79.0%	22
Puts
Short	210.00	84.0%	14
Break-even	202.28	80.5%	10
Long	200.00	77.0%	6

The premium is 22.89% of the width of the position’s wings.

The risk/reward ratio is 3.4:1.

By Tim Bovee, Portland, Oregon, May 1, 2019

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3:10 p.m. New York time

IYR Analysis posted.

3:05 p.m. New York time

My order on IYR has been filled.

1 p.m. New York time

I’m passing on my three remaining prospects — DVN, WDC and AKAM — without further analysis. They published earnings within the last day or two, and each has shown a sharp drop in implied volatility.

12:55 p.m. New York time

I’ve entered a short iron condor order on IYR.

12:30 p.m. New York time

UNH Analysis posted.

12:15 p.m. New York time

I’ve entered a short iron condor position on UNH. Full analysis to come.

So far in my screening I’ve rejected FB for being overly prone to headline shock, and NEM and MRK for having a high risk/reward ratio for any position structure that accords to my guidelines.

11:10 a.m. New York time

I’ll be looking at prospects again today: The stocks of seven companies that announced earnings in April and that this morning show high implied volatility (an implied volatility rank of 25% or higher).

The seven stocks are UNH, NEM, DVN, WDC, MRK, AKAM and FB. I’m looking at them as prospects for short iron condor options positions.

One point that’s an immediate deal-killer will be an ex-dividend date prior to my exit from the positions. The options expire June 21, and my goal is to exit no later than Friday, May 31.

By Tim Bovee, Portland, Oregon, May 1, 2019

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2:05 p.m. New York time

I’m passing on all four of the potential trades I analyzed:

• GDXJ continues to have a risk/reward ratio higher than I like, at 6.2:1.
• IYR also has a high risk/reward ratio, at 5.4:1
• XHB has a low implied volatility rank, at 11%. I prefer 25% or higher.
• XLRE has an options grid with odds that don’t quite work for me. Normally I’ll set the short call in an iron condor at delta 15, which will normally have somewhere around an 85% chance of expiring profitably, out of the money. XLRE’s delta 15 call strike has a 73% of expiring profitably. I’m unwilling to give up that security.

My present trading rules don’t set a firm cut-off for acceptable risk/reward ratio’s. So how high is too high? I’m playing it using the stomach-churn metric. Anything above 5:1 seems a bit scary to me — My $50 credit on a contract could produce a $250, and I get that strange uneasy feeling in my gut at the mere of thought of it. I feel more confident below 4.5:1, and turn cartwheels of happiness if anything gets below 3.5:1.

Scientific? No. Conducive to peace of mind? Absolutely. And even if that stomach churning feeling is produced by my subconscious, it’s a cri de cœur that I’m always inclined to heed.

12:45 p.m. New York time

I’ll be looking at these prospects today: XHB, GDXJ, XLRE and IYR.

By Tim Bovee, Portland, Oregon, April 30, 2019

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SPDR S&P Oil and Gas Exploration and Production ETF (XOP)

Update 5/31/2019: I exited XOP when its price declined below the position’s profit zone, or the range between the two breakeven points of the short iron condor. My rules require a exit if the distance beyond the profit zone would require two days or more to return, using the 14-day average of the Rate of Change metric as an estimate of maximum speed. At exit XOP stood 2.2 days below the profit zone.

I exited for a $1.90 debit, $1.38 greater than the credit I received upon entering, with shares trading a $25.63, or $5.58 lower than when I entered the position.

XOP fell for three days while remaining within the profit zone, then traded sideways until a week before exit, when it gapped down below the zone’s lower boundary and continued to decline, gapping down yet again at the opening today, triggering the exit signal. The fossil fuel prices that underly the companies within the holdings of the exchange-traded fund fell for much of my holding period, and the final downward slide came in response to the Trump administration’s decision to place a 5% tariff on Mexico, which would add to the costs of U.S. refiners.

Shares declined by 17.9% over 32 days, or a -204% annual rate. The options position produced a -73% loss for a -828% annual rate. The implied volatility rate rose to 49% during my holding period.

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I have entered a short iron condor spread on XOP, using options that trade for the last time 53 days hence, on June 21. The premium is a $0.53 credit, and the stock at the time of entry was priced at $31.21.

The profit zone for this position is between $35.53 on the upside and $25.53 on the downside.

The implied volatility rank (IVR) stands at 25.

Premium:	$0.53	Expire OTM
XOP-iron condor	Strike	Odds	Delta
Long	38.00	96.0%	4
Break-even	35.53	90.0%	10.5
Short	35.00	84.0%	17
Puts
Short	28.00	81.0%	17
Break-even	25.53	87.5%	10.5
Long	25.00	94.0%	4

The premium is 17.7% of the width of the position’s wings.

The risk/reward ratio is 4.7:1.

By Tim Bovee, Portland, Oregon, April 29, 2019

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StoneCo Ltd. (STNE)

Update 4/29/2019: I exited STNE today for a loss, paying a debit of $3.75, nearly triple the entry credit. The fintech company was tick-tocking along within extraordinarily wide profit zone when a rival made an announcement that was seen as a threat to STNE corporate performance. Shares at the April 18 open gapped down by 14%, from $34.74 to $29.75. The stock price never recovered. See today’s post on DIS for a discussion of mitigation. Altogether, shares declined by $12.86 and the options position by $2.44.

Shares declined by 31.9% over 40 days, or a -291% annual rate. The options position produced a 65.1% loss for a -594% annual rate.

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STNE is another of the companies that I entered while working out my current strategy, so it wasn’t fully documented on March 20, when I entered a short iron condor spread on the company, using options that traded for the last time 58 days later, on May 17. The premium is a $1.31 credit and the stock at the time of entry was priced at $40.36.

The profit zone for this position is between $51.31 on the upside and $29.31 on the downside.

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SPDR S&P Biotech exchange traded fund (XBI)

Update 6/3/2019: My short iron condor on XBI became profitable 18 days before expiration, and I exited at 17% of maximum potential profit, paying a $0.68 debit with shares trading at $80.92. The implied volatility rate stood at 38.9%, which is 10.4 points above the entry level.

At the exit shares were $6.10 below the entry point, and the options position had gained a $0.14 profit.

Perhaps it is the lack of falling IVR that caused XBI to remain unprofitable on my preferred exit day, 21 days before exit. XBI fell for much of my holding period but remained comfortably in the profit zone, that is, between the two breakeven points. It provides a test case for my new exit rules. Previously, my rule was to get out 21 days before expiration. The new rules keep me in the position, but in a “sudden death” posture: When it becomes profitable, I exit, no matter how small the profit.

In the case of XBI, it was a tidy sum, and waiting over the weekend proved to be the right way. Other cases will help tell whether XBI was typical or an outlier in its behavior.

Shares fell by 7.0% over 35 days, or a $73% annual rate. The options position produced a 20.6% return for a +215% annual rate.

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I have entered a short iron condor spread on XBI, using options that trade for the last time 53 days hence, on June 21. The premium is an $0.82 credit and the stock at the time of entry was priced at $87.02.

The profit zone for this position is between $96.82 on the upside and $73.82 on the downside.

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8:35 p.m. New York time

XOP analysis upon entry posted.

3:40 p.m. New York time

OK. Busy day. I’ve newly posted the results for STNE and earlier, DIS. The latter has a discussion of how to mitigate the impact of headline surprises, which were responsible for the losses in both of these positions.

I’ve also posted my entry analysis for XBI. I’m afraid that XOP will have to wait until later today; the entry credit was $0.53.

3:05 p.m. New York time

My entry order for a short iron condor on XOP has been filled.

2 p.m. New York time

My order on XBI has been filled.

1:50 p.m. New York time

I’ve exited DIS and STNE, each for a loss.

1:35 p.m. New York time

I’ve placed short iron condor orders on XBI and XOP, rejecting the other prospects for having overly high risk/reward ratios. I.e. little bang, big bucks.

1:10 p.m. New York time

I’m also adding XBI, IYR and XOP to the prospects list, also all ETFs.

12:40 p.m. New York time

My plan today is to exit my remaining positions expiring March 17, and to begin reloading with positions expiring June 21, which is 53 days away. By my trading rules, I’d aim to exit the June 21 positions 21 days before expiration, on May 31.

The most likely prospects today, both exchange-traded funds, are GDXJ and INDA. I’ll be taking a look at them.

By Tim Bovee, Portland, Oregon, April 29, 2019

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3:45 p.m. New York time

I’ve finished catching up with my results calculations for the four positions I exited on Friday, April 26.

The analyses have been posted for EA, GDXJ, SPY and TWLO.

By Tim Bovee, Portland, Oregon, April 27, 2019

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