Yesterday seemed to mark some significant sector rotation, and while the overall commodity and energy stories are fundamentally intact, the intense price action may be moderating here, presenting a good opportunity to collect some premium.
The Thesis
The trend in energy seems to have stalled. We’re seeing confirmation on the technical side as the Average Directional Index on the XLE daily chart turns down. A falling ADX reading suggests that any existing trend is moderating and that price action should stagnate.
Additionally, the 30 day historical volatility has just plunged below the current 30 day implied volatility mean to a level not seen since October of 2007.
The Trade
We’ve sent the trade specifics to our subscribers via email. This is an iron condor for June expiration with about a 71% probability of success.