The Option Jive segment from November 16, 2016 examined "Sector Rotation" using sector ETFs. The Market Measures segment from November 17, 2017 studied "Short Straddles in Sector ETFs". This segment focuses on just one of those sector ETFs, XLE, which is the Energy Sector ETF. Because it holds a basket of stocks we assume that short premium trades in XLE would have more consistent results than its individual components. Was our assumption correct and, either way, what did we discover that we can put to use?
A table of XLE’s top ten holdings and their corresponding percentage of the ETF was displayed. The table showed that XOM (Exxon Mobil), CVX (Chevron) and SLB (Schlumberger) represented the top three holdings in the ETF. We ran a study comparing XLE to its top three holdings.
Our study was conducted in the XLE, XOM, CVX and SLB using data from 2005 to the present. We chose the option expiration cycle closest to 45 days to expiration (DTE). We sold the at-the-money (ATM) Straddle and managed winners at 25% of max profit if possible.
A results table comparing short Straddles in the XLE to the individual stocks was displayed. The table included the success rate, average P/L, average P/L as a percentage of the underlying price and the average days in the days in the trade. As expected, XLE saw the most consistent results, with the highest success rate. XLE also had the highest average P/L and the highest average P/L as a percentage of the underlying price.
A comparison of the IV Rank of the SPY (S&P 500 ETF) to the XLE was displayed from 2012 to the present. The table showed that the number of days that XLE had an IVR above 50 was 16.4% which was double the SPY (8.2%). This showed that we had more of a volatility opportunity.
Watch this segment of Market Measures with Tom Sosnoff and Tony Battista for the valuable takeaways and the results of our study comparing short Straddles in XLE versus its top three components and the Volatility opportunities that exist.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.