Friday, September 25, 2015

XOP Analysis

Update 11/13/2015: XOP attained 51% of its maximum potential profit and I exited to avoid further time risk.

Shares rose by 6.3% over 49 days, or a +47% annual rate. The options position produced a 103.9% yield on debit, for a +774% annual rate.

I exited the SPDR Oil & Gas Exploration and Production exchange-traded fund (XOP) profitably a day ago, 22 days before expiration, and am now looking to enter another position expiring in November. (Read about the prior position here.)

[Upstream in Wikipedia]


I shall use the NOV series of options, which trades for the last time 56 days hence, on Nov. 20.


Click on chart to enlarge.
XOP at 11:20 a.m. New York time, 90 days 2-hour bars
Implied volatility stands at 49.1%, which is 2.3 times the VIX, a measure of volatility of the S&P 500 index. XOP’s volatility stands in the 57th percentile of its annual range.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

Iron condor, short the $38 calls and long the $40 calls,
short the $27 puts and long the $25 puts,
sold for a credit and expiring Nov. 21.
Probability of expiring out-of-the-money


The premium is $0.53, which is 26.5% of the width of the position’s wings. The stock at the time of purchase was priced at $33.68.

The risk/reward ratio is 2.4:1.

The zone of profit in the proposed trade covers a $5.50 move either way, or 3.9 times the average true daily range.

Decision for My Account

The best structure I can manage leaves more than $2 at the topside of the one standard deviation and chart ranges outside of the zone of maximum profit while covering all of the bottomside. I'm comfortable with that, given the downward trend of XOP.

I've opened a position in XOP as described above.

-- Tim Bovee, Portland, Oregon, Sept. 25, 2015


My volatility trading rules can be read here.


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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.

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