THE WEEK AHEAD: COST EARNINGS; EEM, OIH, XOP, TSLA
EARNINGS
COST (46/25) announces earnings on Thursday after market close, so look to put on a play in the waning hours of the regular New York session.
Pictured here is an iron condor in the July (53 days) expiry with the short options at their respective 20 delta strikes. Preliminarily, it's paying 1.55 at the mid price, a smidge shy of one-third the width of the wings, with break evens wide of the expected move at 228.45/266.55 and delta/theta metrics of -1.41/1.93, and a buying power effect of 3.45.
For those who don't like waiting as long for their candy, the June monthly (28 days) iron condor with the shorties set up nearest the 20 delta -- the 230/235/260/265 is paying spot on one-third the width of 1.68 with break evens at 233.32/261.68, delta/theta metrics of -1.65/3.80, and a buying power effect of 3.32.
As of Friday close, the May 31st (4 days) to June volatility contraction is from 34.7% to 24.7% or about 28.8%.
Look to manage intratrade by rolling the untested side toward current price on approaching worthless with a 50% max take profit target.
BROAD MARKET
Majors are at the lower end of their 52-week ranges with background implied in QQQ and IWM in the low 20's; SPY and EFA, in the teens:
EEM (32/21)
QQQ (27/21)
IWM (28/20)
SPY (27/16)
EFA (23/16)
The EEM July 19th 36/40/40/44 iron fly is paying 25% of the width of the longs (8-wide) at 2.05 and break evens right at the expected move of 37.95/42.05, delta/theta metrics of -9.01/1.09, with a buying power effect of 1.95. Look to take profit at 25% max, as you would with a short straddle. Generally, these can't be effectively managed intratrade to delta balance without adding setup, so any trade management has to occur toward the back end of the cycle (i.e., taking untested off at approaching worthless, rolling out tested, selling untested side against in new cycle, assuming that the roll out of the tested and the sell against can be done for a net credit).
QQQ is paying slightly more than one-third the width of the wings for the short option strikes nearest the 20's -- the 163/166/188/191: 1.16 credit, break evens at 164.84/189.16, delta/theta metrics of -3.55/1.55, and a buying power effect of 1.84. Manage intratrade by rolling in untested on approaching worthless toward current price; 50% max take profit.
A similarly delta'd IWM setup is paying 1.06: the July 19th 137/141/159/162, with break evens of 139.94/160.06, delta/theta metrics of -1.82/1.34, and a buying power effect of 1.94. 50% max take profit. Manage intratrade by rolling in untested on approaching worthless toward current price; 50% max take profit.
SECTOR EXCHANGE-TRADED FUNDS
Top 5 By Rank: GDXJ (45/28); ASHR (42/28); OIH (40/37); XLB (41/31); EEM (32/21).
The only short straddle paying in excess of 10% of the value of the stock is OIH with the July 19th 14 short straddle paying 1.51 versus 13.81 spot. The at-the-money short straddle in the closely correlated XOP (30/34), the July 19th 27, is also paying > 10%: 2.82 versus 27.12 spot. Manage intratrade by rolling in untested side on approaching worthless to cut net delta in half without inverting to a width greater than credits received; 25% max take profit.
SINGLE NAME WITH EARNINGS IN THE REAR VIEW
TSLA (62/83). The July cycle iron condor set up nearest the 20's -- the 150/155/235/240 is paying 1.78 at the mid, -31/1.65 delta/theta. Markets are wide, so look to do some price discovery if you want to get in on a play. Manage intratrade by rolling in untested on approaching worthless toward current price; 50% max take profit.
COST (46/25) announces earnings on Thursday after market close, so look to put on a play in the waning hours of the regular New York session.
Pictured here is an iron condor in the July (53 days) expiry with the short options at their respective 20 delta strikes. Preliminarily, it's paying 1.55 at the mid price, a smidge shy of one-third the width of the wings, with break evens wide of the expected move at 228.45/266.55 and delta/theta metrics of -1.41/1.93, and a buying power effect of 3.45.
For those who don't like waiting as long for their candy, the June monthly (28 days) iron condor with the shorties set up nearest the 20 delta -- the 230/235/260/265 is paying spot on one-third the width of 1.68 with break evens at 233.32/261.68, delta/theta metrics of -1.65/3.80, and a buying power effect of 3.32.
As of Friday close, the May 31st (4 days) to June volatility contraction is from 34.7% to 24.7% or about 28.8%.
Look to manage intratrade by rolling the untested side toward current price on approaching worthless with a 50% max take profit target.
BROAD MARKET
Majors are at the lower end of their 52-week ranges with background implied in QQQ and IWM in the low 20's; SPY and EFA, in the teens:
EEM (32/21)
QQQ (27/21)
IWM (28/20)
SPY (27/16)
EFA (23/16)
The EEM July 19th 36/40/40/44 iron fly is paying 25% of the width of the longs (8-wide) at 2.05 and break evens right at the expected move of 37.95/42.05, delta/theta metrics of -9.01/1.09, with a buying power effect of 1.95. Look to take profit at 25% max, as you would with a short straddle. Generally, these can't be effectively managed intratrade to delta balance without adding setup, so any trade management has to occur toward the back end of the cycle (i.e., taking untested off at approaching worthless, rolling out tested, selling untested side against in new cycle, assuming that the roll out of the tested and the sell against can be done for a net credit).
QQQ is paying slightly more than one-third the width of the wings for the short option strikes nearest the 20's -- the 163/166/188/191: 1.16 credit, break evens at 164.84/189.16, delta/theta metrics of -3.55/1.55, and a buying power effect of 1.84. Manage intratrade by rolling in untested on approaching worthless toward current price; 50% max take profit.
A similarly delta'd IWM setup is paying 1.06: the July 19th 137/141/159/162, with break evens of 139.94/160.06, delta/theta metrics of -1.82/1.34, and a buying power effect of 1.94. 50% max take profit. Manage intratrade by rolling in untested on approaching worthless toward current price; 50% max take profit.
SECTOR EXCHANGE-TRADED FUNDS
Top 5 By Rank: GDXJ (45/28); ASHR (42/28); OIH (40/37); XLB (41/31); EEM (32/21).
The only short straddle paying in excess of 10% of the value of the stock is OIH with the July 19th 14 short straddle paying 1.51 versus 13.81 spot. The at-the-money short straddle in the closely correlated XOP (30/34), the July 19th 27, is also paying > 10%: 2.82 versus 27.12 spot. Manage intratrade by rolling in untested side on approaching worthless to cut net delta in half without inverting to a width greater than credits received; 25% max take profit.
SINGLE NAME WITH EARNINGS IN THE REAR VIEW
TSLA (62/83). The July cycle iron condor set up nearest the 20's -- the 150/155/235/240 is paying 1.78 at the mid, -31/1.65 delta/theta. Markets are wide, so look to do some price discovery if you want to get in on a play. Manage intratrade by rolling in untested on approaching worthless toward current price; 50% max take profit.
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