Trade Details & Summary

IBB Call Debit Spread (LIVE Opening Trade)

We'll show you how I started searching for a new bullish trade and eventually found a low volatility trade in IBB looking for a move higher to hedge our portfolio.


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In this video I want to go through searching for a bullish trade that we can get into today. Where I always start most of our searches is right here on our watch list that we have inside the Option Alpha platform that we built.

Today, we want to go for a little-implied volatility bullish trade, so we're either going to look at doing maybe a calendar, or a directional trade, perhaps going long, something with a debit call spread. But basically, our portfolio needs a little bit of directional hedge higher.

We need some bullish trades in our portfolio to kind of balance out what we already have. The market's rallying higher today, so we're going to kind of play that direction. The first thing I'm going to do in here is just ...

I'm going to filter out everything that doesn't have earnings or is basically all the stock. So I only want to look at ETFs right now. The reason is that we're getting into earning season, so I want to be ... If I'm going to be in something a little bit longer term, I want to be in something like an ETF.

I could filter out by lowest implied volatility to highest implied volatility if I wanted to. I don't necessarily want to go after something right now that's real, really low IV because we already have a couple of calendar spreads on. So I'm going just to look and see what kind of stocks are moving higher today and following the broad market.

You can see there's a couple, big names that are already moving higher today. UNG's up 4% today. XBI's up 2% today. And IBB is up 1.55. I probably want to take a look at XBI and maybe IBB. We've already got some exposure in oil and gas, so we can kind of diversify a little bit by looking at XBI and IBB.

If I open up both of these, what you'll see is that you'll see we have kind of these expected ranges that are showing up, here, of the one day, one week, and then one month for each of these. Again, because implied volatility's in around the 40 rank for XBI and the IBB around 31, the best strategies to use are these debit spreads, calendar spreads, and diagonal spreads.

Like I said, we already have some calendar spreads. Calendar spreads, in my opinion, work a little bit better when implied volatility is lower, not kind of middle of the range. In this case, I want to try to look maybe at IBB or XBI for a possible trade.

When we look at XBI, here, on the chart you can see the stock is breaking out higher. It's moving higher today. It's been low, so it hasn't been rallying with the general market, but it's now starting the trend in that direction. Same thing with IBB.

In this case, IBB is moving higher as well. Both of these stocks look very similar because they're in the similar space, both in this like biotech, technology space. In this case, I want to go with IBB, and the reason is that it's a little bit higher-priced stock so we can do a smaller number of contracts and possibly get a wider potential profit without having to do like 5 or 10 contracts.

We can do maybe two or three since it's a $270 stock versus XBI. Again, there's no difference, here. It's just preference of what you want to do. So we're going to go into IBB, look at the different trades that we have up here. We've got the April contracts. Those only have 11 days to go.

We've got the May contracts which have about 46 days to go. Then, we have June, which has about 74. Now, usually I like to go a little bit longer term when I do a debit spread because I want to be directionally right, and I want to give myself enough time to be directionally correct.

The Junes, though, maybe a little bit too long, so maybe too far out, 75 days, 74 days. That's probably a little bit too far out from where I want to trade, so I'm going to go ahead and use the May contracts here and try to get into something on a debit call spread with IBB.

Again, since it's a $272 stock, right now, we can buy one option in the money, sell one option out of the money. That's usually what we like to do with our debit spreads is try to kind of trade the contracts that are right around where the stock is trading, so that would be the 270, 275 or so contract.

If I just right-click on those 270s to buy those, and then, left-click on the 275s, that gives me a nice credit-spread on IBB of $265. Now, when I hit confirm and send, you can see that the break-even price that we get, right now, is a little bit below where the stock is trading. That's good.

That's what we want to see. We want to see a little bit of a favorable break-even price. So the stock is trading right now. Well, it's now trading a little bit lower, but it was just trading up around 272 and 70 cents or so. So our break-even price is a little bit lower, here, at 272, 65, so basically, right where the stock is trading.

It's moving around in that area. We can try to fill this thing for a little bit lower price is what we usually try to do. I'm going to try to fill it at around 260. We're going to make two contracts in here, do a little bit of an aggressive trade, just about $500 of risk, so a small position size.

See if we can't get filled around 260. Now again, we're trying to fill a little bit lower than where the market is. We come over to our position statement, you can see the market, right now, is about 265. We're trying to fill a 260, so we're reaching a couple of dollars here on this trade, which is okay.

We're saying, "Look, you know, a little bit of a pull-back maybe today in IBB, since we're entering this order about 10:30 in the morning. We have a little bit of time here to wait for the rest of the day and see if this thing pulls back to an area that gets us in at maybe a little bit better pricing."

We're not going to be super aggressive with these trades. You can see obviously now the market's moving, and now it's trading right at 260, so hopefully we get filled here. We'll pause this video and come back as soon as we get into this trade. All right, and we're back here.

You can see that we did get filled on this order later in the day. It took a little while to get filled, but as always, we try to hold onto some of these things and not be too aggressive in how we adjust the pricing.

You can see we entered this order right around 10:34 in the morning, and then we got filled around three o' clock, 3:30 in the afternoon. It did take a little bit of time to get into this trade, but now we are officially into the IBB call debit spread here to play the stock directionally higher.

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