Utilities Select Sector SPDR Fund (XLU)

Update 11/26/2019: XLU closed in on 50% of maximum potential profit and I exited for a debit of $0.43, leaving a $0.42 profit on the options. At exit shares were trading at $63.05, up $0.30 from their price at entry.

XLU declined for the first week I held the position and then rose to four days to the level from which the decline began, thereafter holding steady within a narrow range. The implied volatility range declined by 17.3 points during the lifespan of the position, to 9.7%.

Shares rose by 0.5% over 21 days, or a +8% annual rate. The options position produced a 97.7% profit for a +1,698 annual rate.

---

I have entered a short iron condor spread on XLU, using options that trade for the last time 45 days hence, on December 20. The premium is a $0.85 credit and the stock at the time of entry was priced at $62.75.

The profit zone for this position is between $64.85 on the upside and $58.85 on the downside.

The implied volatility rank (IVR) stands at 27.0%.

Premium:	$0.85	Expire OTM
XLU-iron condor	Strike	Odds	Delta
Long	66.00	92.0%	9
Break-even	64.85	80.0%	20.5
Short	64.00	68.0%	32
Puts
Short	61.00	71.0%	29
Break-even	58.85	80.5%	19.5
Long	58.00	90.0%	10

The premium is 34.0% of the width of the position’s wings.

The profit zone covers a 3.3% move to the upside and a 6.6% move to the downside of the entry price, for total coverage of 10.0%

The risk/reward ratio is 1.9:1, with maximum risk of $165 and maximum reward of $85 per contract.

By Tim Bovee, Portland, Oregon, November 5, 2019

Read More »

iShares 20+ Year Treasury Bond ETF (TLT)

Update 11/29/2019: I exited my short iron condor position on TLT on the 21st day prior to expiration, in keeping with my normal practice. The exit price was a $1.44 debit, 11.1% of maximum potential profit returning a $0.18 profit, with shares trading at $140.07, up $3.10 from the price at entry.

TLT’s share price began to rise three days after I entered the position and continued the uptrend for 14 trading days, placing it in the money on the call side but still profitable because of the long hedge. The implied volatility rank declined during the holding period to 34.7%, down 4.8 points from the entry level.

Shares  rose 2.3% over 24 days, or a +34% annual rate. The options position produced a 12.5% return for a +190% annual rate.

---

I have entered a short iron condor spread on TLT, using options that trade for the last time 45 days hence, on December 20. The premium is a $1.62 credit and the stock at the time of entry was priced at $136.97.

The profit zone for this position is between $141.62 on the upside and $130.62 on the downside.

The implied volatility rank (IVR) stands at 39.5.

Premium:	$1.62	Expire OTM
TLT-iron condor	Strike	Odds	Delta
Long	145.00	90.0%	10
Break-even	141.62	79.5%	20.5
Short	140.00	69.0%	31
Puts
Short	134.00	71.0%	29
Break-even	130.62	81.0%	19
Long	129.00	91.0%	9

The premium is 32.4% of the width of the position’s wings.

The profit zone covers a 3.4% move to the upside and a 4.9% move to the downside of the entry price, for total coverage of 8.3%

The risk/reward ratio is 2.1:1, with maximum risk of $338 and maximum reward of $162 per contract.

By Tim Bovee, Portland, Oregon, November 5, 2019

Read More »

The Consumer Discretionary Select Sector SPDR Fund (XLY)

Update 11/26/2019: My short iron condor options position on XLY reached 50% maximum potential profit, and I exited for a $0.76 debit. Shares were trading at $121.33, down $0.64 from the entry price.

XLY traded sideways within a narrow range during the period I held the position. The implied volatility rank was 25.9% at the close, down 4.3 percentage points from its level at entry.

Shares declined by 0.5% over 21 days, or a -9% annual rate. The options position produced a 100.0% return for a +1,738% annual rate.

---

I have entered a short iron condor spread on XLY, using options that trade for the last time 45 days hence, on December 20. The premium is a $1.66 credit and the stock at the time of entry was priced at $121.97.

The profit zone for this position is between $126.52 on the upside and $114.52 on the downside.

The implied volatility rank (IVR) stands at 30.2%.

Premium:	$1.52	Expire OTM
XLY-iron condor	Strike	Odds	Delta
Long	128.00	90.0%	10
Break-even	126.52	80.5%	19
Short	125.00	71.0%	28
Puts
Short	119.00	69.0%	31
Break-even	114.52	79.5%	20.5
Long	113.00	90.0%	10

The premium is 33.8% of the width of the position’s wings.

The profit zone covers a 3.8% move to the upside and a 6.4% move to the downside of the entry price, for total coverage of 10.2%

The risk/reward ratio is 2:1, with maximum risk of $298 and maximum reward of $152 per contract.

By Tim Bovee, Portland, Oregon, November 5, 2019

Read More »

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

Update 12/13/2019: I exited my short iron condor position on XOP for a profit, seven days before expiration. The exit debit was $0.49, giving a $0.31 profit on the options, with the underlying shares trading at $21.94, down $1.08 from their level at entry. The exit came at 38.8% of maximum potential profit.

I entered the position at what proved to be a minor peak. XOP traced a shallow decline for nearly a month and then resumed a slow rise, remaining below the entry peak. The implied volatility rank declined by 15.4 points during the holding period, to 12.0% at the exit.

Shares declined by 4.7% over 38 days, or a -45% annual rate. The options position produced a 63.3% return for a +608% annual rate.

---

I have entered a short iron condor spread on XOP, using options that trade for the last time 45 days hence, on December 20. The premium is an $0.80 credit and the stock at the time of entry was priced at $23.02.

The profit zone for this position is between $25.80 on the upside and $20.80 on the downside.

The implied volatility rank (IVR) stands at 27.4.

Premium:	$0.80	Expire OTM
XOP-iron condor	Strike	Odds	Delta
Long	27.00	91.0%	12
Break-even	25.80	83.5%	20.5
Short	25.00	76.0%	29
Puts
Short	22.00	62.0%	33
Break-even	20.80	73.0%	23.5
Long	20.00	84.0%	14

The premium is 40.0% of the width of the position’s wings.

The profit zone covers a 12.1% move to the upside and a 10.7% move to the downside of the entry price, for total coverage of 22.7%

The risk/reward ratio is 1.5:1, with maximum risk of $120 and maximum reward of $80 per contract.

By Tim Bovee, Portland, Oregon, November 5, 2019

Read More »

VanEck Vectors Gold Miners ETF  (GDX)

Update 11/21/2019: I’ve exited my short iron condor position on GDX for a $0.29 debit, producing a $0.31 profit on the options, with shares trading at $27.14, up $0.25 from their entry level.

GDX traded within a narrow range during the lifespan of the position. I exited at 51.7% of maximum potential profit, with the implied volatility range at 18.4%, down 25.6 points from its level at entry.

Shares rose by 0.9% over 16 days, or a +21% annual rate. The options position produced a 106.9% return for a +2,439% annual rate.

---

I have entered a short iron condor spread on GDX, using options that trade for the last time 45 days hence, on December 20. The premium is a $0.45 credit and the stock at the time of entry was priced at $26.89.

The profit zone for this position is between $29.60 on the upside and $23.60 on the downside.

The implied volatility rank (IVR) stands at 44.0.

Premium:	$0.60	Expire OTM
GDX-iron condor	Strike	Odds	Delta
Long	33.00	96.0%	6
Break-even	29.60	86.5%	16
Short	29.00	77.0%	26
Puts
Short	25.00	79.0%	20
Break-even	23.60	87.0%	12.5
Long	23.00	95.0%	5

The premium is 20.0% of the width of the position’s wings.

The profit zone covers a 9.4% move to the upside and a 14.6% move to the downside of the entry price, for total coverage of 24.0%

The risk/reward ratio is 4:1, with maximum risk of $240 and maximum reward of $60 per contract.

By Tim Bovee, Portland, Oregon, November 5, 2019

Read More »

2:10 p.m. New York time

And that is a wrap for the day, insofar as options are concerned. I’ve opened five positions: GDX, TLT, XLU, XLY and XOP, covering gold, long-term federal bonds, utilities, consumer discretionary and fossil fuels, respectively. I’ve passed on SLV for the present. It topped the implied volatility rank chart of my prospects yesterday, but then dropped to 4th place today. If it goes higher again I may enter, although, like love and marriage or a horse and carriage, silver and gold seem to be forever entwined. SLV adds little diversification to my holdings.

2:05 p.m. New York time

I’ve entered a short iron condor order on XLU and posted the analysis.

1:55 p.m. New York time

My short iron condor order on TLT as been filled and I’ve posted the analysis.

1:45 p.m. New York time

I’ve gotten a fill on my XLY short iron condor and posted the analysis.

1:20 p.m. New York time

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

12:05 p.m. New York time

I’ve placed a short iron condor order on XLY, +c128 -c125 -p119 +p113, asking for a $1.56 credit. No fill yet.

11:45 a.m. New York time

I’ve placed a short iron condor order on TLT, +c145 -c140 -p134 +p129, asking for a credit of $1.66. No fill as of yet.

11:05 a.m. New York time

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

10:35 a.m. New York time

This is the day I enter new options positions, expiring December 20 and constructed as short iron condors. My initial plan is to enter positions on GDX, SLV, TLT, XOP and XLY.

The my momentum screen of yesterday’s results knocked two positions off of the momentum list: FRO and NTRA. They join RNG and SBLK in having an exit signal based on the Fisher Transform (FT) using the monthly chart. All four presently  are in the FT bull mode.

By Tim Bovee, Portland, Oregon, November 5, 2019

Read More »

9:25 a.m. New York time

Things  begin to get interesting this week after the customary doldrums between options series. I exited all of my positions in the November monthlies 21 days before expiration, and on Tuesday I shall enter the December monthlies, 45 days before they expire on December 20.

At this point I’m fighting a huge compulsion to start singing “Circle of Life” from The Lion King, the film I watched on my flight home from Japan last week. (Great film — I fell asleep in the middle and logged three full hours.)

It’s the circle of life
And it moves us all
Through despair and hope
Through faith and love
‘Til we find our place
On the path unwinding
In the circle
The circle of life

What better description of the life of an options trader? We’re tightly bound to the options cycles.

We are circling through a time of low implied volatility, and so my choices for the next cycle’s short iron condor options plays are limited: SLV at the top of the list, followed by the gold series (GDX, GDXJ or GLD), long-term federal bonds (TLT), consumer discretionary (XLY) and energy (XOP or USO). Other prospects have an implied volatility rank (IVR) under 25%, to low for an attractive trade using the iron condor strategy. So, five positions, if I treat silver differently from gold.

Slim pickins, but so it goes.

In the meantime, I’ve spent the idle hours working on momentum shares portfolio, perfecting the rules, which can be seen here in the section headlined, “Mid-risk: Momentum Trades of Shares”. Entry relies on a modification of the Zacks Momentum screening. The exit rules, as always, have been the most challenging. At present I’m relying on the Fisher Transform on a monthly chart.

My present holdings: ANIK, BDSI, CROX, EURN, FRO, NTRA, RNG, SBLK, SSD and STRL.

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

Read More »

3:10 p.m. New York time

I’ve updated XBI Analysis with results.

6:45 a.m. New York time

I’ve exited my last position of the November options cycle, XBI, for $0.87, or 13.9% of maximum potential profit. Today is management day, 21 days prior to expiration, when I sell all winning positions. There are no losing positions this cycle, so my options trading is done until the time comes to enter the December options positions, on Nov. 5.

I’m still in Japan and shall wait until morning, my local time, and after the close U.S. time, to post full results on XBI.

By Tim Bovee, Fukuoka, Japan, October 25, 2019

Read More »

8 p.m. New York time

I’ve updated TLT Analysis with results.

Friday is 21 days before the options in my one remaining iron condor position, XBI, expire. If it’s profitable on Friday, I’ll exit. If it’s not profitable, the position will go into the sudden death phase under my trading rules.

7:20 p.m. New York time

My short iron condor position on TLT has been filled for half of maximum potential profit — a $0.41 debit. Results to come shortly.

By Tim Bovee, Fukuoka, Japan, October 23, 2019

Read More »

9 p.m. New York time

An interesting week, exiting options positions and buying stock positions while sound asleep during my Japan trip. It’s my first experience in automating everything in my trading operation, and it has gone well.

The first need to wake up and intervene will come on October 25, next Friday, when I will exit any remaining profitable options positions, 21 days prior to expiration.

The two remaining short iron condor positions are both profitable, TLT at 23.2% of maximum potential profit and XBI at 29.7% of max.

Meanwhile, I’ve spent time working up a ruleset for momentum plays on shares. Here’s a description below, and it has also been posted on the Trading Rules tab at the top of each page of Private Trader.

Momentum Trades of Shares

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

Select high momentum symbols based on the criteria of your choice. I discuss my criteria in the “In Practice” section below.

In selecting trades, give preference to

1. Higher rates of change.
2. Expansionary periods while avoiding recessionary periods, as signaled by the Sahm Rule Recession Indicator, published on the Federal Reserve’s FRED tool.

Upon buying the stock, set a trailing stop/loss for 20% below the fill price.

Exit the position when the momentum conditions that prompted the trade no longer apply.

Funds from closed positions will be placed in a government or corporate bond fund, such as TLT or HYG, until required for a new stock position.

In practice

There are many ways to define momentum. The Han et al. study referenced below took a universe of stocks and defined those with the highest six-month change as being suitable for momentum trading.

I have chosen to use the Zacks screen for momentum called Zacks #1 Rank Uptrends, which has the following parameters:

• A Zacks Rank of 1, meaning the strongest buy recommendation.
• A 10% price change over the past 12 weeks.
• A 5% price change over the past 4 weeks.
• A positive price change over the past week.
• A positive price change since the beginning of the year.
• A price of 70% or higher of the 52-week high-low range.

The Zacks query also includes a couple of house-keeping items: A minimum price of $5 and average volume of at least 100,000.

I’ve retained those but lowered the minimum average volume to 10,000 and the minimum price to $1.

The so far has produced results ranging from about a dozen symbols to around 20.

My exit signal is the disappearance of a symbol from the screen results, suggesting that the stock is no longer showing sufficient momentum to retain.

Rather than trying to rank the results of the screen from best trade down to least best, I’ve chosen to use a random number to select the trade. The positions are on the small side, taking advantage of the new commission-free rule of my brokerage in order to achieve equity diversification. I add one trade a week, selecting the trade day by random number, in order to achieve time diversity.

———

Three research papers were used in constructing the ruleset:

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

By Tim Bovee, Fukuoka, Japan, October 18, 2019

Read More »