iShares MSCI Brazil Capped ETF (EWZ)

Update 7/25/2019: I’ve exited my short iron condor position on EWZ for a $0.25 debit, which is 50% of maximum potential profit, with shares trading at $45.06, which is $1.40 above the entry price..

EWZ peaked nine days into the trade and then declined. The implied volatility rank at the exit was 7.9%, down 10.0 from the entry level.

Shares rose 3.2% over 23 days, or a +51% 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 EWZ, using options that trade for the last time 45 days hence, on August 16. The premium is a $0.50 credit and the stock at the time of entry was priced at $43.66.

The profit zone for this position is between $48.50 on the upside and $37.50 on the downside.

The implied volatility rank (IVR) stands at 17.9%.

Premium:	$0.50	Expire OTM
EWZ-iron condor	Strike	Odds	Delta
Long	50.00	93.0%	8
Break-even	48.50	88.5%	12.5
Short	48.00	84.0%	17
Puts
Short	39.00	82.0%	16
Break-even	37.50	86.0%	12.5
Long	37.00	90.0%	9

The premium is 25% of the width of the position’s wings.

The risk/reward ratio is 3:1.

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

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SPDR S&P Biotech exchange traded fund (XBI)

Update 7/22/2019: My short iron condor position on XBI came close to half of its maximum potential profit and I exited for a profit. The cost of the exit was a $0.35 debit, producing a $0.31 profit, with shares trading at $85.51, down $1.82 from the entry price. The position earned 47.0% of maximum potential profit. The implied volatility rank was 17.2%, up 0.3 more than its entry level.

XBI traced a sideways movement throughout all but two sessions of its holding period, running in the $85 to $87 range. The first two sessions saw a rise to the $89 level and a decline thereafter.

Shares declined by 2.1% over 20 days, or a -38% annual rate. The options position produced an 88.6% return for a +1,616.43 annual rate.

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I have entered a short iron condor spread on XBI, using options that trade for the last time 45 days hence, on August 16. The premium is a $0.66 credit and the stock at the time of entry was priced at $87.33.

The profit zone for this position is between $95.66 on the upside and $76.66 on the downside.

The implied volatility rank (IVR) stands at 16.9.

Premium:	$0.66	Expire OTM
XBI-iron condor	Strike	Odds	Delta
Long	98.00	94.0%	7
Break-even	95.66	90.0%	11.5
Short	95.00	86.0%	16
Puts
Short	79.00	84.0%	15
Break-even	76.66	87.0%	12
Long	76.00	90.0%	9

The premium is 22% of the width of the position’s wings.

The risk/reward ratio is 3.5:1.

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

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VanEck Vectors Junior Gold Miners ETF (GDXJ)

Update 7/18/2019: GDXJ moved beyond its profit zone by more than a day, and I exited for a loss, for a $0.97 debit, a loss of $61 per contract, with shares trading for $39.28, up $5.02 above their price at entry. The implied volatility rate rose by 18.3 points to 100%.

GDXJ rose gently throughout my holding period until the last two days, when it rose noticeably on the first day and sharply on the second, putting the position beyond the boundaries of profit.

Shares rose by 14.7% over 16 days, or a +334% annual rate. The options position produced a 62.9% loss for a -1,435% annual rate.

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I have entered a short iron condor spread on GDXJ, using options that trade for the last time 45 days hence, on August 16. The premium is a $0.36 credit and the stock at the time of entry was priced at $34.24.

The profit zone for this position is between $39.36 on the upside and $28.36 on the downside.

The implied volatility rank (IVR) stands at 80.4.

Premium:	$0.36	Expire OTM
GDXJ-iron condor	Strike	Odds	Delta
Long	41.00	91.0%	11
Break-even	39.36	88.0%	15
Short	39.00	85.0%	19
Puts
Short	30.00	86.0%	12
Break-even	28.36	90.0%	8.5
Long	28.00	94.0%	5

The premium is 18% of the width of the position’s wings.

The risk/reward ratio is 4.6:1.

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

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4:35 p.m. New York time

Neither of my remaining entry orders was filled. I’ll look again at KRE and XLP on Wednesday.

2:45 p.m. New York time

I took a look at a short iron condor on IYR as a potential trade but couldn’t work it into a risk/reward ratio I liked. So I’ve passed on it. Its IV rank is 20.9; not spectacular. I was working with short options at $93 on the calls and $84 on the puts, with varying wing widths.

2:05 p.m. New York time

I’ve entered a short iron condor on EWZ, with short calls at $48 and short puts at $39. The order was filled for $0.50 credit.

1:45 p.m. New York time

I’ve placed an order for a short iron condor on KRE, with short calls at $57 and short puts at $59, with $2 wide wings. My asking price is $0.38.

1:05 p.m. New York time

I’ve placed an order for a short iron condor on XLP, with short calls at $62 and puts at $56, with $1 wide wings. My asking price is $0.20.

12:40 p.m. New York time

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

11:20 a.m. New York time

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

10:50 a.m. New York time

Having sold off the last of my July options yesterday, it’s now time to fill my trading accounts with options expiring in August, on the 16th. It’s not going to be an easy task. The problem is volatility.

In working through potential trades this morning, I’m finding that individual stocks are for the most part blocked by earnings announcements. I avoid earnings days because of the vast uncertainty they bring. The liquid stocks without earnings coming  up generally have prices below $10, which I don’t like to trade because their options grids tend to be hard to work with and the need for more contracts in a trade increases the fees.

The remaining prospects are exchange-traded funds, and such funds tend to have lower volatility, for the most part. TastyTrade, which has been a huge influence on my trading rules, focuses on implied volatility rank  (IVR) in assessing implied volatility. The IVR gives a level playing field allowing the trader to assess IV in terms of the volatility history of the symbol.

IVR is calculated like this:

100 x (the current IV level – the 52 week IV low) / (the 52 week IV high – 52 week IV low) = IV Rank

That formula, and an important essay on IVR, can be found here on the TastyTrade site.

IVR is important because of its influence on the premium I get from selling short iron condors, my preferred trade. The higher the IVR, the the greater the credit I get from selling. Best case scenario: The IVR falls during my holding period, and when I buy back the short positions positions, I can do so for a cheaper price. It’s the old adage always near to the hear to short sellers: Sell high, buy low. In the case of options trading, it’s the IVR we’re selling and buying back.

Long-time readers of Private Trader will recall that I used to require an implied volatility rank of 50% or greater. The TastyTrade crew awhile back said they prefer IVR of 25% or greater, and I switched to that.

But there’s a downside: When IVRs across the markets become low, a hard-and-fast 25% or greater rule excludes most trades I would otherwise are to take. So as an experiment, for the August options, I’ll add some lower IVRs to the mix of symbols I analyze. I rule-of-thumb, for this month at least, will be: the IVR of the symbol I’m analyzing must be equal to or greater than the IVR of SPY, the exchange-traded fund that tracks the S&P 500.

SPY presently has an IVR of 14.1%

So, under that experimental rule, here’s the list from which I shall pick my potential trades, along the the IVR of each symbol and its sector:

• GDXJ, 81.7%, metals
• OIH, 37.0%, fossil fuels
• XLP, 33.7%, consumer staples
• IYR, 32.7%, real estate
• XOP, 22.7%, fossil fuels
• KRE, 21.7%, regional banks
• XBI, 19.3%, biotech
• EWZ, 18.9%, brazil
• IWM, 16.7%, russel 2000
• And the boundary, SPY, 14.1%, s&p 500

So, first, some breakfast, and then, let the analysis begin!

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

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2:25 p.m. New York time

I’ve updated the GDXJ Analysis with results.

2 p.m. New York time

GDXJ became minimally profitable, and under the sudden-death rules in force as expiration approaches, I exited. Results coming shortly.

That gets me out of my July options entirely. So the next step will be to populate the August positions, which have 46 days before expiration.

1:45 p.m. New York time

Note that I shall be following up on NVDA and SMH to see where they would stand if I had held on to the positions, just as a test of my 2019 trading rules.

1:30 p.m. New York time

And I’ve updated my SMH analysis with results.

1:20 p.m. New York time

I’ve updated my NVDA analysis with results.

11:10 a.m. New York time

I have exited my short iron condor positions, on NVDA for a $4.89 debit and SMH for a $2.52 debit. Both are losses. Full results coming up later.

9:45 a.m. New York time

Shares in the semiconductor sector gapped up this morning after an agreement over the weekend between the U.S.  President Trump and China’s President Xi to resume trade talks, and Trump’s announcement that he was considering lifting sanctions against the Chinese electronics company Huawei.

I have two semiconductor positions, NVDA and SMH, and both were pushed beyond their profit zones. With fewer than 21 remains until expiration, that means they come under the sudden death rules — I must exit both today.

I’ll wait until the morning bell rush is over — it’s a classic response to news, so perhaps the prices will fall a bit — and then place my exit orders.

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

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11:25 a.m. New York time

Today is 21 days before my options positions expire on July 19. According to my trading rules, I exit all profitable trades no matter how small the profit.

At this point I have three trades remaining. All are within the price range within which they will be profitable at exit, but they aren’t profitable now. So the rules say I don’t exit them, and hang on until the Monday prior to expiration.

The positions are short iron condors on GDXJ, NVDA and SMH.

By Tim Bovee, Portland, Oregon, June 28, 2019

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10:20 a.m. New York time

I’ve updated my KRE Analysis with results.

9:57 a.m. New York time

And like magic, there’s a fill on my KRE order, at my bid price. I’ll update the entry analysis with results shortly.

9:55 a.m. New York time

I’ve placed an exit order, again, on KRE, for a $0.30 debit. The midpoint is presently $0.25.

By Tim Bovee, Portland, Oregon, June 26, 2019

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1:20 p.m. New York time

GDXJ has moved back down into its zone of profit. Although the position remains unprofitable at this point, being within the zone makes it profitable at expiration, on July 19. If it turns profitable by Friday, 21 days prior to expiration, then I would exit then. If it remains unprofitable, then after Friday it comes under my “sudden death” rule, requiring an exit immediately if it moves beyond the profit zone, or if it becomes currently profitable. In any case, I exit all positions on the Monday before expiration.

The KRE position still has an exit order that has not yet been filled. Two other positions, NVDA and SMH, are profitable at this point but have not reached 50% of maximum potential profit and will be exited on Friday if they remain profitable.

10:15 a.m. New York time

As it did yesterday, GDXJ remains above the profit zone, with less than a day (0.73) to return to profitability at the present 14-day average rate of change. My exit point comes when it takes a full day or more to return at the current ROC.

9:55 a.m. New York time

It never fails. The busiest days are the days when I need to leave my trading desk. In today’s case, it’s dental work.

I’ve exited IWM for a $0.31 debit and XOP for a $0.17 debit, each at 50% of maximum potential profit. I’ve placed an exit order on KRE for a $0.30 debit; it is presently going for $0.33 and the order hasn’t yet been filled.

Full results later in the session.

By Tim Bovee, Portland, Oregon, June 25, 2019

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3:15 p.m. New York time

GDXJ has moved beyond the profit zone. Under my rules, at this point I calculate the price’s distance beyond the zone in days. If the price is one day or more beyond the zone, then I exit. In GDXJ’s case, distance works out to be 0.6 days above the zone. That’s less than a day, and so I’ll stay in the position for now.

12:50 p.m. New York time

The oil and gas exploration and production fund XOP has moved close to 50% of maximum potential profit, and I have placed an exit order for a $0.17 debit.

My junior gold miners fund GDXJ position is unprofitable and yet, just barely, remains within the profit zone. All other positions are showing profits. Under my rules, all profitable positions will be exited by Friday, June 28, which is 21 days before expiration.

9:50 a.m. New York time

The regional banking fund KRE has again moved to 50% of maximum potential profit, and I have placed an exit order for a $0.30 debit.

By Tim Bovee, Portland, Oregon, June 24, 2019

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11:55 a.m. New York time

The stock underlying my short iron condor on KRE goes ex-dividend on Friday, increasing the chances that the short options in my position might be assigned.

The short options are at greatest risk when they are out of the money and the dividend is greater than the remaining extrinsic value. Added to the picture: KRE is presently trading at 35% of maximum potential profit, making an early exit more attractive. My normal exit day for a profitable position is 21 days before expiration. In KRE’s case, that would be June 28, or a week from the ex-dividend date, a time short enough to lessen the attraction of holding on through ex-div.

Here’s the math.

The lowest quarterly dividend of the last four was $0.2419 and the highest, $0.3187, for an average of $0.2803.

My position has a short call with a $56 strike and an extrinsic value of $0.12, and a short put with a $48 strike and an extrinsic value of $0.39. The shares are presently trading at $51.75, so both strikes remain comfortably out of the money.

When the stock goes ex-dividend, we can expect the price to drop by the amount of the dividend. For caution, I’ll use the maximum of the last four quarters, rounded to 32 cents. That gives a decline to $51.43, leaving the options still within the money.

At this point I conclude that there’s a low risk of assignment. Both short options are out of the money and have extrinsic value greater than the estimated dividend.

A low risk, however, still has risk. Things change quickly in the markets, and what is now a low risk situation could become riskier. Or the position could be assigned for some other reason. At this point, I’m willing to take the risk. I’ll redo the calculations closer to the market close, and post here if I’ve changed my mind.

By Tim Bovee, Portland, Oregon, June 20, 2019

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