XOP Analysis

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

Update 6/25/2019XOP pushed to 51.4% of maximum potential profit, and I exited my short iron condor position for a debit of $0.17 per share. That produced a $0.18 per share profit on the options, with the stock priced at $26.00, or $0.96 above the entry point.

XOP during my holding period traced a sideways pattern a bit more than $2 wide. The implied volatility rank dropped by 8.3 to 35.6%.

Shares rose by 3.8% over 19 days, or a +74% annual rate. The options position produced a 105.9% return for a 2,034% annual rate.


I have entered a short iron condor spread on XOP, using options that trade for the last time 43 days hence, on July 19. The premium is a $0.35 credit and the stock at the time of entry was priced at $25.04

The profit zone for this position is between $29.35 on the upside and $20.35 on the downside.

The implied volatility rank (IVR) stands at 43.9%.

Premium: $0.35 Expire OTM
XOP-iron condor Strike Odds Delta
Long 31.00 96.0% 4
Break-even 29.35 92.0% 9
Short 29.00 88.0% 14
Puts
Short 22.00 83.0% 14
Break-even 20.35 88.0% 9.5
Long 20.00 93.0% 5

The premium is 17.5% of the width of the position’s wings.

The risk/reward ratio is 4.7:1.

By Tim Bovee, Portland, Oregon, June 6, 2019

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KRE Analysis

SPDR S&P Regional Banking ETF (KRE)

Update 6/26/2019: KRE reached 50% of maximum potential profit, and I exited my short iron condor options position for a $0.30 debit, which gave the position a $0.30 profit, with shares trading for $51.94, down $0.29 from their price at entry.

KRE traded in a narrow range of a bit more $1 during my holding period. The implied volatility rank at exit was 37.9%, up 3.7 points from the entry level. The hope in trading short iron condors is that volatility will decline, but such was not the case with this trade. The financial sector was impacted by speculations that the Federal Open Market Committee would cut the federal funds rate.

Shares declined by 0.6% over 20 days, or a -10% annual rate. The options position produced a 100.0% return for a +1,825% annual rate.


I have entered a short iron condor spread on KRE, using options that trade for the last time 43 days hence, on July 19. The premium is a $0.60 credit and the stock at the time of entry was priced at $52.23.

The profit zone for this position is between $56.60 on the upside and $44.60 on the downside.

The implied volatility rank (IVR) stands at 34.2%.

Premium: $0.60 Expire OTM
KRE-iron condor Strike Odds Delta
Long 59.00 95.0% 6
Break-even 56.60 88.5% 12.5
Short 56.00 82.0% 19
Puts
Short 48.00 81.0% 17
Break-even 44.60 86.5% 12
Long 44.00 92.0% 7

The premium is 17.1% of the width of the position’s wings.

The risk/reward ratio is 4.8:1.

By Tim Bovee, Portland, Oregon, June 6, 2019

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Live: Thursday, June 6, 2019

2 p.m. New York time

My order for a short iron condor position on XOP was filled at my asking price, and I’ve posted an analysis.

1:40 p.m. New York time

I’ve placed an order for a short iron condor on XOP, with the shorts being a $29 call and a $22 put and the wings being $2 wide. My asking price is $0.35.

9:45 a.m. New York time

KRE analysis posted. Other holdings are all within the profit zone.

9:40 a.m. New York time

I’ve entered a short iron condor position on KRE. Analysis to follow.

By Tim Bovee, Portland, Oregon, June 6, 2019

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SMH Analysis

VanEck Vectors Semiconductor ETF (SMH)

I have entered a short iron condor spread on SMH, using options that trade for the last time 45 days hence, on July 19. The premium is a $1.18 credit and the stock at the time of entry was priced at $101.54.

The profit zone for this position is between $112 on the upside and $91 on the downside.

The implied volatility rank (IVR) stands at 47.0%.

Premium: $1.18 Expire OTM
SMH-iron condor Strike Odds Delta
Long 117.00 95.0% 6
Break-even 113.18 91.0% 10.5
Short 112.00 87.0% 15
Puts
Short 91.00 82.0% 16
Break-even 85.18 87.5% 11
Long 84.00 93.0% 6

The premium is 19.7% of the width of the position’s wings.

The risk/reward ratio is 4.1:1.

By Tim Bovee, Portland, Oregon, June 4, 2019

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Live: Tuesday, June 4, 2019

4:45 p.m. New York time

I’ve posted full results at exit for my short iron condor on AAPL.

3:25 p.m. New York time

My short iron condor position on AAPL turned profitable late in the session, and I exited for a $1.16 debit, producing a small return. Share were trading at $179.52. Full results to come, although most likely after the market close. This is the last of my positions expiring June 21 and puts an end to the “sudden death” phase of those options (see my trading rules).

3:15 p.m. New York time

In addition to the trades I made, I checked out several other prospects, and rejected them without a full analysis:

  • IYR, with a 42.1% implied volatility ratio, is a real estate fund that pays monthly dividends at a fairly high rate, increasing the chances that my position would be assigned.
  • FXE, with a 37.7% IVR, tracks the Euro exchange rate, and the mess that is Brexit gives a lot of headline uncertainty.
  • CSCO, at 38.0%, and XLP, at 45.6%, both have overly high risk/return ratios by my standards.

2:30 p.m. New York time

XLB exit results posted.

2:15 p.m. New York time

SMH analysis posted.

1:50 p.m. New York time

I’ve entered a short iron condor position on SMH. The position sold for a $1.18 credit, with a July 19 expiration, structured as a short $112 call and short $91 put, with a long $117 call and long $84 put defining the legs. Analysis to follow.

11:05 a.m. New York time

I’ve exited XLB at my bid price. Full results to come.

10:10 a.m. New York time

My short iron condor position on XLB, expiring June 21, became profitable this morning, and I have put in an exit order at $0.37, which is 22.9% of maximum potential profit. My other June holding, AAPL, is unprofitable now, but the price is within the profit zone — between the two breakeven points, meaning it would expire profitably.

By Tim Bovee, Portland, Oregon, June 4, 2019

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GDXJ Analysis

VanEck Vectors Junior Gold Miners ETF (GDXJ)

I have entered a short iron condor spread on GDXK, using options that trade for the last time 46 days hence, on July 19. The premium is a $0.21 credit and the stock at the time of entry was priced at $31.06.

The profit zone for this position is between $35.21 on the upside and $27.21 on the downside.

The implied volatility rank (IVR) stands at 60.7%.

Premium: $0.21 Expire OTM
GDXJ-iron condor Strike Odds Delta
Long 36.00 90.0% 12
Break-even 35.21 88.0% 14.5
Short 35.00 86.0% 17
Puts
Short 28.00 83.0% 15
Break-even 27.21 86.5% 12
Long 27.00 90.0% 9

The premium is 21.0% of the width of the position’s wings.

The risk/reward ratio is 3.8:1.

By Tim Bovee, Portland, Oregon, June 3, 2019

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Live: Monday, June 3, 2019

3:50 p.m. New York time

GDXJ order filled and analysis posted.

2:45 p.m. New York time

I looked at five other potential short iron condor trades, besides GDXJ (which still has no fill at a $0.21 ask), but I rejected them without a full analysis.

  • XLP, with an implied volatility rank of 53%, had a poor grid for matching my need for short options close to 16 delta, and the best reasonable risk/reward ratio I could get was 5.8:1, too high for my appetite. A pity, really. XLP is a fund that tracks consumer staples, and if we are as I suspect in the third phase of the business cycle, then consumer staples are a good place to be.
  • BIDU, 44% IVR is being panned mercilessly by analysts, and maybe the China markets are a bit risky these days for a direction neutral play such as an iron condor.
  • CSCO, 41% IVR has an ex-dividend date that I’d prefer to avoid.
  • EEM, 37% IVR, is an emerging markets fund with heavy exposure to China.
  • SPY, at long last, has regained some volatility, with a 35% IVR. But I already hold IWM, the Russell 2000, and they tend to closely mirror each others moves. I’d prefer a bit more diversification.

2:35 p.m. New York time

Full results at the exit of my short iron condor on XBI.

1:40 p.m. New York time

I’ve placed an entry order for a short iron condor on GDXJ, short $35 calls and short $36 puts, with the wings each $1 wide. Full analysis to follow if I get a fill.

1:30 p.m. New York time

XBI filled for a debit of $0.68 with shares at $80.92. Full results to follow.

12 p.m. New York time

With 18 days left until expiration, XBI has become profitable, at 23% of maximum potential profit, and I’ve put in an exit order for a debit of $0.63. We’re now in the “sudden death” phase for June options under my exit rules, so any profit gets an immediate exit order.

By Tim Bovee, Portland, Oregon, June 3, 2019

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Trading Rules

My trading rules are straight out of research conducted by Tom Sosnoff‘s Tastytrade financial network, with the exception of the exits rules, where I’ve expanded on his methods. The rules are intended for smaller accounts, and has the goal of many base hits rather than the occasional home run amid a lot of strikeouts.


Trading Rules

Positions: Short vertical or iron condor spread.

Short leg entry goal: delta 16

Implied Volatility Rank (IVR) 25% or greater. (This is similar to the IV Percentile)

Entry timing: As close as possible to 45 days prior to expiration, giving preference to monthly options.

Due diligence before entry:

  • Avoid earnings announcements
  • Avoid ex-dividend days

Exit rules:

  • Normal exit rules apply up to 21 days prior to expiration.
    • Exit
      • at 50% of maximum potential profit, calculated as this way:
        • (credit_received – current_debit) / credit_received
        • where credit received is maximum potential profit and current debit is the cost of exiting the position. If it’s negative, the position is a losing one at present.
      • 21 days prior to the options’ expiration
        • if the position is profitable, even if minimally so
      • if the share price is outside of the range of profitability, defined by the breakeven prices, by one day or more using the 14-day average Rate of Change (ROC) and calculated as follows:
        • Days_from _profitability = Distance_from_breakeven / ROC
  • The sudden-death exit rules apply fewer than 21 days until expiration.
    • Exit
      • if the price moves beyond the range of profitability by any amount.
      • if the position becomes profitable by any amount
      • in all circumstances on the Monday prior to expiration (i.e., all positions are closed by five days prior to expiration).

It is important to remember that a position can be within the range of profitability and yet still not be profitable. The range defines profit upon expiration. A number of movable metrics are involved, including the implied volatility and normal time decay in the options.


The upside of this rule set is that there is consistently an 85% or so chance of the position being profitable, with clear rules for management in those 15% of cases where the positions moves outside of the zone of profit.

The downside of the rule set is that the credit upon entry is relatively low compared to other strategies, and therefore the risk/reward ratio tends to be higher. The brokerage sequesters more of your funds to support each trade. It’s a common decision traders must make.

In earlier strategies, I would insist on a risk/reward ratio no higher than 3:1. That guideline has been tossed out. I’ll accept the higher risk, limiting it by the percentage of trading funds that I want to commit to a single position.

The positions are actively managed, so in practice, it would take a catastrophic move for a position to reach the maximum potential loss.

By Tim Bovee, Portland, Oregon, May 31, 2019

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.

License
Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

 

Live: Friday, May 31, 2019

3:30 p.m. New York time

After today’s exits I have three positions remaining with June expirations: AAPL, XBI and XLB. I also have one July position, IWM.

I’ll play the three remaining June positions according to my revised exit rules: With fewer than 21 days before expiration, I enter the sudden-death phase, exiting if a position that becomes profitable to any degree, and if it moves out of the profit zone by any degree. I’ll exit all remaining positions on the Monday prior to expiration, or with five days to go.

See my Trading Rules on the menu bar a the top of the page. I’ve updated them with a more precise script for exits.

And on Monday I shall start looking for new July positions to make use of the cash free up by today’s exits. At 49 days prior to expiration, the July monthlys are in prime time for my sort of trading.

1:50 p.m. New York time

I’ve posted full results for my XOP exit.

1:30 p.m. New York time

I’ve posted full results for the UNH position I exited.

9:55 a.m. New York time

Today is 21 days before the June monthly options expire; they account for five of my six short iron condor positions.

By my trading rules, this is the day that I manage positions. I close profitable positions, while retaining those inside the profit zone yet unprofitable, and those outside the profit zone, except those that would take two days or more to return to the profit zone, using the 14-day Rate of Change metric to make a determination.

I’ll hold on to losing positions that would take less than two days to return to profitability.

So, by those rules, I have exited UNH at 9.2% of maximum potential profit. It’s a winner, but a small one. I have also exited XOP, which declined today, putting it 2.2 days away from the profit zone. That leaves AAPL, XBI and XLB which are within the profit zone but not profitable.

In any case, I shall exit all remaining positions by the Monday prior to expiration. For the June monthlys, that would be June 17.

Later in the session I’ll have full results for the positions I have exited so far today.

By Tim Bovee, Portland, Oregon, May 31, 2019

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