THE WEEK AHEAD: DBX, TECK EARNINGS; USO, GDXJ; VIX, VXX, UVXY
EARNINGS:
The earnings that are best metrically for earnings-related volatility contraction plays are DISH (87/59), TECK (87/52), and DBX (82/57). Unfortunately, strike availability in DISH is limited to two-and-a-half wides, making it an unattractive play given its stock price (39.97 as of Friday close).
Pictured here is a DBX (82/57) skinny short strangle in the March cycle paying 1.98 on a buying power effect of about 3.25 (60.9%), break evens wide of the expected move, and delta/theta of 3.32/-7.44. Given its near-straddle narrowness, I would look to take profit at 25% max. Announcing on Thursday after market close, look to put on something in the waning hours of Thursday's session.
The other one of interest is also small: TECK (87/52), which finished the week at 13.46. A play similar to that in DBX -- a March 20th 13/14 skinny short strangle -- pays 1.15 at the mid price on a buying power effect of about 2.25 (51.1%) with break evens greater than the expected move and delta/theta metrics of -4.21/2.17. As with the DBX skinny, look to take profit at 25% max.
EXCHANGE-TRADED FUNDS WITH EXPIRY IN WHICH AT-THE-MONEY SHORT STRADDLE IS PAYING GREATER THAN 10% OF STOCK PRICE:
XLE (46/20), July
USO (42/35), April
FXI (35/21), August
XOP (34/34), June
XBI (34/27), June
SMH (30/25), June
EWZ (14/25), June
GDXJ (5/28), May
GDX (4/23), June
The paying plays of shortest duration are in USO (April) and GDXJ (May). Take your pick in June between XOP, XBI, SMH, and EWZ.
BROAD MARKET FUNDS WITH EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE IS PAYING GREATER THAN 10% OF STOCK PRICE:
EEM (38/12), December
QQQ (26/18), September
EEM (23/18), September
IWM (19/16), October
SPY (16/13), November
FUTURES (EXCLUDING CURRENCY/TREASURIES):
/NG (52/39)
/CL (41/35)
/GC (26/11)
/ZS (23/17)
/ZW (20/21)
/ZC (16/14)
/ES (16/14)
/SI (5/24)
VIX/VIX DERIVATIVES:
VIX finished the week at 13.68, so there are probably some happy campers out there who shorted the January-end volatility pop to nearly 20. The March, April, and May /VX contracts are trading at 15.40, 16.11, and 16.30, respectively. I could see going small with an April term structure trade if you haven't already got one on, but May isn't going for a ginormous premium over April, so there probably isn't much benefit to going out farther in time: the April 16/18 is paying .60 at the mid with a break even of 16.60 versus the /VX contract of 16.11; the May 16/20, virtually the same price.
With the VXX short call verticals I already have on, I'm basically looking for a VIX low (it was around 12) to consider pulling some units off in profit. On the other end of the stick, I'm waiting for another pop in VIX to potentially add. VIX at 20 is a nice place to look to do that ... .
The earnings that are best metrically for earnings-related volatility contraction plays are DISH (87/59), TECK (87/52), and DBX (82/57). Unfortunately, strike availability in DISH is limited to two-and-a-half wides, making it an unattractive play given its stock price (39.97 as of Friday close).
Pictured here is a DBX (82/57) skinny short strangle in the March cycle paying 1.98 on a buying power effect of about 3.25 (60.9%), break evens wide of the expected move, and delta/theta of 3.32/-7.44. Given its near-straddle narrowness, I would look to take profit at 25% max. Announcing on Thursday after market close, look to put on something in the waning hours of Thursday's session.
The other one of interest is also small: TECK (87/52), which finished the week at 13.46. A play similar to that in DBX -- a March 20th 13/14 skinny short strangle -- pays 1.15 at the mid price on a buying power effect of about 2.25 (51.1%) with break evens greater than the expected move and delta/theta metrics of -4.21/2.17. As with the DBX skinny, look to take profit at 25% max.
EXCHANGE-TRADED FUNDS WITH EXPIRY IN WHICH AT-THE-MONEY SHORT STRADDLE IS PAYING GREATER THAN 10% OF STOCK PRICE:
XLE (46/20), July
USO (42/35), April
FXI (35/21), August
XOP (34/34), June
XBI (34/27), June
SMH (30/25), June
EWZ (14/25), June
GDXJ (5/28), May
GDX (4/23), June
The paying plays of shortest duration are in USO (April) and GDXJ (May). Take your pick in June between XOP, XBI, SMH, and EWZ.
BROAD MARKET FUNDS WITH EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE IS PAYING GREATER THAN 10% OF STOCK PRICE:
EEM (38/12), December
QQQ (26/18), September
EEM (23/18), September
IWM (19/16), October
SPY (16/13), November
FUTURES (EXCLUDING CURRENCY/TREASURIES):
/NG (52/39)
/CL (41/35)
/GC (26/11)
/ZS (23/17)
/ZW (20/21)
/ZC (16/14)
/ES (16/14)
/SI (5/24)
VIX/VIX DERIVATIVES:
VIX finished the week at 13.68, so there are probably some happy campers out there who shorted the January-end volatility pop to nearly 20. The March, April, and May /VX contracts are trading at 15.40, 16.11, and 16.30, respectively. I could see going small with an April term structure trade if you haven't already got one on, but May isn't going for a ginormous premium over April, so there probably isn't much benefit to going out farther in time: the April 16/18 is paying .60 at the mid with a break even of 16.60 versus the /VX contract of 16.11; the May 16/20, virtually the same price.
With the VXX short call verticals I already have on, I'm basically looking for a VIX low (it was around 12) to consider pulling some units off in profit. On the other end of the stick, I'm waiting for another pop in VIX to potentially add. VIX at 20 is a nice place to look to do that ... .
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