XLU trade ideas
ROLLING: XLU DEC 2ND 45/48.5 SHORT PUT VERT TO DEC 23RDAfter I pulled off the short call of the Dec 2nd iron fly at near worthless today, I rolled the short put side out to the Dec 23rd expiry to give it a little more time to work out, as well to be able to work the call side of the setup effectively. (I have a setup in the Dec 30th expiry already, so didn't want to roll there; Jan was too far out in time for my tastes). I did the roll for a .05 ($5)/contract debit.
Shortly thereafter, I sold a call side against -- the 48/51.50 short call vert short here -- for a .23 ($23)/contract credit, so I'm net credit for the roll. (I could not get enough credit out of the 48.5/52 to bother with, so dropped the spread down a half strike. The resulting setup is pictured here.
Ideally, I need price to move back toward the "body" of the setup to get out for scratch or better. If that doesn't happen, I'll naturally take the call side off at near worthless, and then "lather, rinse, repeat" with the rolling/selling an oppositional side against.
XLU Ranging 17 NOVXLU is ranging around $46-$47 right now and developing a shampoo pattern (head & shoulders) on the 1 Year chart. I sold a straddle and I'll get out as soon as I can.
Each support and resistance has a roughly twin shoulder going back to Feb.
Temporarily neutral to allow the formation to develop.
OPENING: XLU DEC 30TH 42.5/46.5/46.5/49.5 IRON FLYAdding to my core exchange traded fund fly positions here with this high implied volatility rank underlying. (I already have some XLU on, so just adding a "smidgeon" here). The implied volatilty in this isn't great, but then it's almost never "great" ... .
Metrics:
Probability of Profit: 46%
Max Profit: $210/contract
Max Loss: $190/contract
Break Evens: 44.40/48.60
Notes: Will look to manage this like a short straddle -- at 25% max profit ... .
Neutral Long Put Ratios on XLUXLU have a 86% IV Percentile, which means that 86% of the days over the past year the Implied Volatity was below this level.
Custom Put Ratio's
Buy +1 NOV 48 PUT
Sell-2 NOV 47 PUT
BUY +1 NOV 46 PUT
SELL-2 NOV 45 PUT
This will give us a max profit of $171 with a 77% chance of making money. And we only lose if the price goes below $44.64. Since we are adding risk to have better probabilities, if we get assign we would have to buy 200 shares, but it would be 5% below of where we are right now, and since we already have had a 12% down move we can expect a correction soon and we would be able to sell even more premium if we need to.
Defensive sector vs. Cyclical SectorAs long as utilities' performance is weaker against cyclical, we can expect bull market to continue - i.e. expect the ratio (price) to stay inside the channel.
If the ratio (price) breaks the channel above, asset managers are moving more aggressively to defensive stocks, which means that they are anticipating that the economy is slowing significantly - i.e. the bull market to be over. The ratio has been staying higher since the end of the last year, but it has had problems to move out of the channel.
However, daily & weekly Golden Cross is close to happen (50-moving average to cross above 200-moving average), but since June ratio has been making lower lows and lower highs. This is a important ratio to watch. Use this to anticipate overall stock market movement.
OPENING: XLU DEC 2ND 45/48.5/48.5/51 IRON FLYThe underlying implied volatility in XLU is not very high, but it's high relative to where it's been the last 52 weeks (currently, 72 (Dough 52-week implied vol percentile)).
Here are the metrics for the setup:
Probability of Profit: 43%
Max Profit: $175/contract
Max Loss/Buying Power Effect: $175/contract
Break Evens: 46.75/50.25
Notes: As you can see, this isn't a very high probability setup. Basically, it's a risk one to make one. The notion here is to take maximum advantage of the at-the-money premium as you would with a short straddle, which -- like an iron fly -- is a short volatility strategy. If you sell your short options farther away from current price, as you would with an iron condor, your probability of profit increases, but your profit potential decreases because the out of the money strikes bring in less premium.
From a price action standpoint, you're looking for price to stay within your break evens and ideally for volatility to collapse somewhat running toward expiry.
Unlike an iron condor or short strangle, I look to manage at 25% max profit.
TRADE IDEA: XLU NOV 18TH 42/47/47/52 IRON "FLY"I haven't done many of these in the past, but I'm beginning to warm up to them, particular with instruments that wouldn't ordinarily yield jack diddly squat with a traditional iron condor setup.
Here's how this iron fly compares to an iron condor with similar break evens (it would be a Nov 18th 43/46/48/51):*
Probability of Profit: Fly: 52% Condor: 52%
Max Profit: Fly: $220 Condor: $120
Max Loss: Fly: $280 Condor: $180
Break Evens: Same
Theta: Fly: 1.85/day Condor: 1.32/day
Take Profit: Fly: 25% of max ($55 profit) Condor: 50% of max ($60)
Spread "Repair": Same for both setups; roll tested side out for duration and, if feasible, away from current price for strike improvement; sell the oppositional spread against for a credit that exceeds what it cost to roll the tested side. Taking into account all credits received and debits paid, shoot to take off the rolled setup at the original take profit.
As you can see, the probability of profit is the same for setups with the same or substantial similar break evens, and there's little meaningful difference between the profit I would get if I managed the fly like a short straddle (at 25% max) and the condor like a short strangle (at 50% max) ($55 vs. $60).
The research I have looked at for short straddles and short strangles indicates that short straddles reach 25% max in about 30 days on average; short strangles 50% max in about 25 days, www.tastytrade.com (short strangles); tastytradenetwork.squarespace.com (short straddles), which appears to suggest that there is no huge difference in "time to same profit" for the two strategies. (Although those studies involved short straddles and short strangles, you can think of iron flies as "defined risk short straddles" and short strangles as "defined risk short strangles"). Consequently, even though you're receiving greater credit up front for the iron fly, you're probably going to have to wait around for it to reach 25% max profit about the same amount of time as you would an iron fly.
The important takeaway here is that -- but for the iron fly -- I would probably not put on a defined risk trade in XLU. The reward is too small; the risk too great in comparison. So, another tool in the tool box for when you just can't enough credit out of a play in an instrument with your "regular" set of tools ... .
* -- Generally speaking, I would not set up an iron condor this tightly. I'd set up the short option strikes at the edge of the expected move and then the long options out from there 3-5 strikes (e.g., a Nov 18th 42/45/49/52). However, that particular setup would only yield a .72 ($72) credit/contract, and -- were I to manage that trade for 50% of profit -- would only yield .36 ($36) for a setup with a max loss of 2.28/contract ($228). The type of setup for an instrument with these particular metrics (price, implied volatility, etc.) is generally not worth it, in my opinion.
Pullback late enterPullback with long last candel, which hurts enter point. Possibility for price to go up today.
XLU breaks out of a long-term rangeIf XLU stays above this range, you can be sure the fear trade in the market is intact.
Sell Bias on the bounce back - #ProfitingMeHi,
the trading scenario suggests a Sell opportunity on the top in this price consolidation... if it will be possible.
Thank you
Girolamo Aloe - profiting.me
Another 61.8 Fib pullback inside the PRZ$XLU continues to range inside the PRZ of a Daily Bat pattern.
Two successful sells I had on this one..
Will the third one be the one that will lead $XLU to its final destination? 45-46$ is my final target zone for this setup
Tomer, The MarketZone
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Bat pattern completed The Bat pattern I've mentioned in the past for $XLU was completed last week.
As you can see there was minor bearish reaction to my harmonic sell zone.
$XLU is very close to 50$ so we may see it try to touch this psychological level.. that's usually what happens.
The bearish scenario for $XLU requires a stop loss above 50.5$ with nice R/R as I aim for 47$ as my first daily target zone and 45$ as secondary
Tomer, The MarketZone
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