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NaughtyPines
Nov 27, 2015 4:26 AM

XOP -- OIL/GAS EXPLORATION SPDR PREMIUM SELLING PLAY 

SPDR S&P Oil & Gas Explor & ProductArca

Description

Although most of the ideas I've published recently have involved earnings announcement plays, I'm always on the lookout for volatility in the SPDR's or other sector ETF's.

Currently, the highest IVR SPDR that pops up on my screener is XOP. XOP, OIH, and related individual underlyings have continuously been at the volatility forefront for several weeks running here, so it's no surprise they're there yet again.

XOP's current IVR/IV is nothing to go gah-gah over (45/45), but some consider anything more than an IVR of 35 to be "worthwhile" in an ETF (obviously higher is better, since higher IVR and higher IV generally makes for a richer premium). Me personally, I look for a 70th percentile IVR as a general matter, but with a good deal of sidelined buying power, a waning earnings calendar, and the possibility of a 1.00+ credit premium to be sold for the setup ... . Well, sometimes you just have to settle for less ... .

Here's the standard setup:

Jan 8th XOP 32.5/43 short strangle
POP%: 72%
Max Profit: 104/contract
BPE: ~$402
BE's: 31.46/44.04

Notes: I generally consider a "standard" iron condor or short strangle setup as a setup that has its short strikes at the 1 standard deviation line.

In this particular case, the break evens (31.46 and 44.04) fit in comfortable with August to date range bound price action, which is nice ... .

Comment

With 36 DTE and with my short call strike currently valued at .10, I'm going to roll by short call down 9 strikes to the 34 (same expiry) for an additional .26 in credit.
Comments
NaughtyPines
UPDATE: I'm going to go ahead and put this on with the Jan 15th expiration and at slightly different strikes -- 30/41, which currently goes for a 1.08 credit. My thinking is that we have OPEC coming up in a couple of days and that prices will possibly stabilize after that (and volatility bleed a bit out of oil and gas instruments).
NaughtyPines
No fill in Friday's abbreviated holiday session. If the IVR holds up into next week, I may attempt a fill on either Monday or Tuesday.
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