THE WEEK AHEAD: AAPL, EBAY, TSLA, X, AMD, FB EARNINGSEARNINGS:
Here are the stocks that announce earnings this week that are of most interest to me from a volatility contraction play standpoint:
AAPL (85/35), Tuesday, After Market Close.
EBAY (82/34), Tuesday, After Market Close.
AMD (56/59), Tuesday, After Market Close.
TSLA (80/75), Wednesday, After Market Close.
FB (54/33), Wednesday, After Market Close.
X (55/61), Thursday After Market Close.
Although TSLA has the greater than 70% rank/greater than 35% 30-day metrics I generally look for in these plays, its liquidity leaves something to be desired, although I'm naturally looking at after hours quotes here, and they're showing unattractively wide.
From a "bang for your buck standpoint" (credit received as a function of share price), the most attractive plays are in AMD and X with their respective February at-the-money short straddles paying 6.39 (12.7% of share price) and 1.25 (13.3%). Pictured here is a delta neutral AMD February 21st (26 day) 43/60 short strangle, paying 1.29 at the mid price with delta/theta metrics of -.21/6.69 and break evens wide of the expected move on both sides.
With AAPL and FB, I'm more likely to go out to March to collect a little more and have more room to be wrong, in spite of the fact that volatility contraction is likely to be more muted, with the AAPL March 20th 285/355 15 delta short strangle paying 6.75 and the FB 195/240 paying 4.64. EBAY doesn't appear to be paying more than 1.00 for a 16 delta, so I'm unlikely to partake unless volatility dramatically ramps up here in the next couple of days.
EXCHANGE-TRADED FUNDS (SCREENED FOR THOSE PAYING >10% IN CREDIT RELATIVE TO STOCK PRICE IN <180 DAYS UNTIL EXPIRY):
USO (54/35), March
FXI (53/24), June
XBI (50/30), June
XLE (32/19), July
EWW (31/18), June
SMH (28/24), May
XOP (25/32), March
GDXJ (23/29), May
GDX (20/26), May
EWZ (13/25), June
Here, the rank/30-day ideal is >50, >35%, with only the peskily small USO meeting those criteria. It's just one of those periods when single name premium selling is paying in shorter duration, but exchange-traded sector and broad market funds are not, at least in the 45 day wheel house. Consequently, it's a Hobson's choice of either (a) selling premium in single name; (b) selling sector/broad market, but of longer duration; or (c) hand-sitting. I'm kind of opting for a little of single name and a little of longer duration sector stuff just to keep the theta on and burning.
BROAD MARKET (SHOWING EXPIRY THAT PAYS >10% IN CREDIT RELATIVE TO STOCK PRICE):
EEM (34/19), September
QQQ (25/19), September
IWM (26/17), September
SPY (21/14), November
In spite of the little volatility pop we had last week, duration that pays remains duration that is hugely long ... .
VIX/VIX DERIVATIVES:
VIX finished the week at 14.56, with front month /VX futures contracts going for 16.05, 16.26, and 16.72 in February, March, and April respectively. If the volatility hangs in there through next week, I may consider adding a small number of units to my VXX short position. Naturally, the pop isn't massive, so I don't want to go all in as though "this is it," since there could be more volatility ahead. By the same token, there could be less, since market memory tends to be short.
