THE WEEK AHEAD: WFC, C, JPM, BAC EARNINGS; XLF, IWM, XLU; /CL
EARNINGS:
And ... we're back into earnings season, which ordinarily kicks off with a bunch of financials. Generally, I don't play these for volatility contraction, since they don't get all that frisky generally, but this environment is a tad different from quarters past, with the 30-day in WFC (45/76), C (44/91), JPM (41/63), and BAC (40/70) all greater than 50% and with the sector exchange-traded fund up there as well (XLF (47/58)).
Rather than play one of the single names, I've pondered what could be done in the sector exchange-traded fund, XLF, instead. Pictured here is a long-dated XLF call diagonal with the back month at the 90 delta in June of next year, the 30 delta-ish front month in June of this one. Ordinarily, I don't go that far out in time with the back month, but June '21 happens to one of the expiries with the lowest implied, so it will be one in which the 90 delta has a lower extrinsic value baked into it compared to expiries of shorter duration. Costing 8.36 at the mid price, it has a break even of 23.36 versus 23.38 spot, a debit paid/spread width ratio of .76, and delta/theta metrics of 58.64/.77, so it's neutral to bullish assumption with plenty of time to reduce cost basis via short call roll. You'd be paying 8.36 for an 11-wide, so have a max profit potential equal to the width of the spread (11.00) and what you paid (8.36) or 2.64 ($264) -- about 31.6% return on capital, assuming max profit.
Naturally, it would have been more awesome were one to have gotten in at the 3/22 17.50 lows.
EXCHANGE-TRADED FUNDS WITH 30-DAY IMPLIED GREATER THAN 50%:
XLU (52/52)
XLE (47/75)
SMH (43/57)
GDXJ (41/81)
EWZ (40/74)
EWW (39/58)
SLV (34/50)
XOP (33/100)
USO (32/128)
GDX (28/62)
BROAD MARKET:
IWM (53/54)
TQQQ (47/122)
QQQ (40/42)
SPY (40/41)
EEM (35/40)
EFA (31/35)
FUTURES:
/NG (78/73)
/ZW (69/36)
/GC (41/31)
/ES (40/42)
/SI (34/48)
/CL (32/1555)
/ZC (29/32)
/ZS (21/20)
I reference /CL in the header, primarily due to the background implied, but also due to price action. Some of the volatility may piss out at futures open given a supposed agreement by OPEC+ to cut production by 10 million bpd or so, with the last holdout -- Mexico -- coming on board. If we revist 20/bbl., I will consider adding /CL out-of-the-money short puts.
VIX/VIX DERIVATIVES:
What's new ... . We're in a high volatility environment and in backwardation with VIX finishing the week at 41.67.
MUSINGS:
In The IRA: Things aren't looking all that great for me from an acquisition standpoint with the short put ladders I stuck out there for things on my shopping list -- at least for the April "rung" of them. That's okay, since if they expire worthless, I'll keep the premium associated with that rung. Naturally, if I don't pick up jack via assignment, I'll look at re-upping with a rung to replace the expiring worthless if that happens or just let the remaining rungs ride and look for opportunities going forward. A lot can happen in a week ... .
And ... we're back into earnings season, which ordinarily kicks off with a bunch of financials. Generally, I don't play these for volatility contraction, since they don't get all that frisky generally, but this environment is a tad different from quarters past, with the 30-day in WFC (45/76), C (44/91), JPM (41/63), and BAC (40/70) all greater than 50% and with the sector exchange-traded fund up there as well (XLF (47/58)).
Rather than play one of the single names, I've pondered what could be done in the sector exchange-traded fund, XLF, instead. Pictured here is a long-dated XLF call diagonal with the back month at the 90 delta in June of next year, the 30 delta-ish front month in June of this one. Ordinarily, I don't go that far out in time with the back month, but June '21 happens to one of the expiries with the lowest implied, so it will be one in which the 90 delta has a lower extrinsic value baked into it compared to expiries of shorter duration. Costing 8.36 at the mid price, it has a break even of 23.36 versus 23.38 spot, a debit paid/spread width ratio of .76, and delta/theta metrics of 58.64/.77, so it's neutral to bullish assumption with plenty of time to reduce cost basis via short call roll. You'd be paying 8.36 for an 11-wide, so have a max profit potential equal to the width of the spread (11.00) and what you paid (8.36) or 2.64 ($264) -- about 31.6% return on capital, assuming max profit.
Naturally, it would have been more awesome were one to have gotten in at the 3/22 17.50 lows.
EXCHANGE-TRADED FUNDS WITH 30-DAY IMPLIED GREATER THAN 50%:
XLU (52/52)
XLE (47/75)
SMH (43/57)
GDXJ (41/81)
EWZ (40/74)
EWW (39/58)
SLV (34/50)
XOP (33/100)
USO (32/128)
GDX (28/62)
BROAD MARKET:
IWM (53/54)
TQQQ (47/122)
QQQ (40/42)
SPY (40/41)
EEM (35/40)
EFA (31/35)
FUTURES:
/NG (78/73)
/ZW (69/36)
/GC (41/31)
/ES (40/42)
/SI (34/48)
/CL (32/1555)
/ZC (29/32)
/ZS (21/20)
I reference /CL in the header, primarily due to the background implied, but also due to price action. Some of the volatility may piss out at futures open given a supposed agreement by OPEC+ to cut production by 10 million bpd or so, with the last holdout -- Mexico -- coming on board. If we revist 20/bbl., I will consider adding /CL out-of-the-money short puts.
VIX/VIX DERIVATIVES:
What's new ... . We're in a high volatility environment and in backwardation with VIX finishing the week at 41.67.
MUSINGS:
In The IRA: Things aren't looking all that great for me from an acquisition standpoint with the short put ladders I stuck out there for things on my shopping list -- at least for the April "rung" of them. That's okay, since if they expire worthless, I'll keep the premium associated with that rung. Naturally, if I don't pick up jack via assignment, I'll look at re-upping with a rung to replace the expiring worthless if that happens or just let the remaining rungs ride and look for opportunities going forward. A lot can happen in a week ... .
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