UPDATE: EWZ SEPTEMBER 18TH 33 CC/OCTOBER 16TH 27 COVERED STRAD... with a cost basis of 31.93.
Notes: Another broken trade in which I took on shares. (See Post Below). Some work needs to be done on improving the 27 short call ... .
EWZ
OPENING (IRA): EWZ AUGUST 21ST/SEPTEMBER 18TH 23/24 SHORT PUT... for a total of 1.73 credit, with the 24 paying .80 and the 23, .93.
Notes: One of the dividend yielders on my shopping list (yield currently at 3.58%). I've been going three rung with these, but there is currently no October to take advantage of.
THE WEEK AHEAD: DAL, WFC, NFLX EARNINGS; XOP, GDXJ, EWZEARNINGS:
A bunch of earnings next week, particularly in the financials sector:
C (40/58/14.1%): Tuesday before market open.
DAL (50/95/23.0%): Tuesday before market open.
JPM (38/49/12.1%): Tuesday before market open.
WFC (58/63/15.4%): Tuesday before market open.
GS (31/48/11.7%): Wednesday before market open.
EBAY (71/56/13.4%): Wednesday before market open.
IBM (47/43/10.0%): Wednesday before market open.
BAC (36/52/13.1%): Thursday before market open.
JNJ (29/28/7.2%): Thursday before market open.
MS (35/51/12.3%): Thursday before market open.
NFLX (50/60/14.5%): Thursday before market open.
From the standpoint of what the August at-the-money short straddle is paying, you appear to get the most bang for your buck out of DAL (23.0%), followed by WFC (15.4%) and NFLX (14.5%). Because so many financials are announcing, I did consider a short premium play in the sector exchange-traded fund, XLF (29/41/10.4%), but the August at-the-money short straddle is paying just a smidge over 10% of the stock price relative to WFC (15.4%), C (14.1%), BAC (13.1%), JPM (12.1%), and GS (11.7%), so it's potentially more worthwhile to go single name for the volatility contraction here and to look to WFC to get the most buck banging.
Unfortunately, strike granularity for WFC out in August remains pesky, with 2.5 wides where I'd want to set up my tent. For what it's worth, the 22.5/30 paid 1.42 as of Friday close, with the shorts camped out around the 23 delta.
To me, airlines remain a bullish assumption play from these levels, and DAL is no exception. Consider out-of-the-money short put: the August 21st 20 delta 22 is paid 1.06 as of Friday close or another bullish assumption setup such as a Zebra, buying 2 x the 70 delta calls and selling the 50, potentially calendarizing the setup so that you have more time to reduce cost basis (e.g., buy 2 x December 18th 23 calls, sell the August 21st 27).
Pictured here is a NFLX August 21st 455/465/680/690 iron condor with the shorts set up at the 16 delta as of Friday close. The market's showing wide on this setup, but look to get at least one-third the width of the widest wing (i.e., for a 10-wide, at least 3.33). You'll probably have to fiddle with the strikes given the amount of movement it's experiencing.
EXCHANGE-TRADED FUNDS ORDERED BY RANK AND SCREENED FOR >35% 30-DAY IMPLIED:
EWW (42/40/10.0%)
GDXJ 40/55/13.73%)
XLE (38/50/12.6%)
GDX (34/41/11.0%)
EWZ (29/48/12.1%)
SMH (26/36/9.2%)
XOP (25/61/15.8%)
USO (7/53/15.8%)
XOP (15.8%), GDXJ (13.73%), and EWZ (12.1%) have the most juice as a function of buying power ... .
BROAD MARKET:
Currently, no broad market with an August at-the-money short straddle paying greater than 10% of the stock price, but if you feel compelled to play, IWM (42/38/9.4%) is paying the most as a function of stock price.
IRA DIVVY-GENERATORS SCREENED FOR AUGUST SHORT STRADDLE PAYING MORE THAN 10% OF STOCK PRICE:
EWZ (29/48/12.1%) (Current Yield: 3.36%)
THE WEEK AHEAD: MU, FDX EARNINGS; XOP, IWM, EWZEARNINGS:
MU (36/64/11.7%) announces earnings on Monday after the close. Pictured here is a 19 delta short strangle in the July expiry, paying 1.55.
FDX (46/59/11.4%) announces Tuesday after the close, with the 20 delta July 17th 115/147 paying 4.56.
EXCHANGE-TRADED FUNDS ORDERED BY RANK AND SCREENED FOR 30-DAY >35%:
EWW (59/44/12.6%)
EWZ (47/63/17.7%)
XLE (45/52/16.0%)
GDXJ (43/60/17.7%)
SMH (37/42/12.0%)
GDX (36/45/14.5%)
XOP (32/70/20.2%)
USO (13/67/16.7%)
Would probably go out to August here (54 days) ... . Looked at through the lens of what the short straddle is paying as a function of share price, it looks like I should be selling premium in XOP (20.2%), followed by EWZ (17.7%) and/or GDXJ (17.7%).
BROAD MARKET ORDERED BY RANK:
IWM (57/45/12.7%)
QQQ (38/32/<10%)
EFA (37/29/<10%)
SPY (37/34/<10%)
Small caps continue to be where the juice is at.
IRA DIVIDEND-GENERATORS
IYR (53/40/11.7%)
XLU (50/33/<10%)
EWZ (47/63/17.7%)
EWA (46/40/11.2%)
EFA (37/29/<10%)
SPY (37/34/<10%)
HYG (35/20/<10%)
EMB (20/18/<10%)
TLT (20/19/<10%)
EWZ offers both better better premium as a function of stock price than IYR at the moment, as well as slightly higher yield (3.66% for the former; 3.50% for the latter). Since I've already laddered out IYR, I may dip at the EWZ well with the 16 delta short put paying .70 in August at the 22 strike, .84 in September at the 21 ... .
Purchasing EWZ calls during June.May's monthly candle closed above April's high.
If price returns to April's high, then I will begin purchasing call options at the 26.50 strike with a July 2 expiration.
OPENING: EWZ JANUARY/JUNE 15/26 CALL DIAGONAL... for an 8.40/contract debit.
Metrics:
Max Loss: $840/contract
Max Profit: $260/contract
Debit Paid/Spread Width Ratio: 76.4%
Break Even: 23.40 vs. 23.30 spot
Notes: A neutral to bullish assumption, IRA-friendly play in the weakened EWZ. I naturally could have gone short put (the June 19th 19 shortie is paying .63), but wanted the opportunity to make something decent if it totally rips away. In a cash secured environment, you'll get some buying power relief over going with the naked.
From a delta standpoint, the back month is at the 89 delta; the front month at the 28, with the front paying just a smidge short of the extrinsic in the back month (which is why the break even is slightly above where EWZ is currently trading). The way to look at these is a form a synthetic covered call, with the back month 90 standing in for your stock.
EWZ - ShortTaking a stab here, Brazil in not so good shape fundamentally, and all this FOMO is almost certain to pass.
THE WEEK AHEAD (PART II): HPQ, CRM, COST, GDXJ/GDX, USO/XOP, EWZEARNINGS:
... with June monthly at-the-money short straddle price as a function of stock price shown:
HPQ (38/62), 14.3%: Announces Wednesday before market open.
CRM (54/46), 8.7%: Announces Thursday before market open.
COST (35/32), 6.5%: Announces Thursday before market open.
Notes: Ordinarily, I screen potential earnings announcement volatility contraction plays by rank and for 30-day greater than 50%, but we've had a volatility pop in the last 52-weeks such that implied rank or percentile isn't necessarily as informative as it was. Where this happens, I look at whether the underlying is going to objectively pay or be worthwhile, using the at-the-money short straddle price relative to the stock price in a potential evaluation of that (i.e., the HPQ June at-the-money short straddle is paying 14.3% of the price of the stock).
A good rule of thumb is that anything paying below 10% of the stock price is probably not worth it as a volatility contraction play in single name, so HPQ would probably be the only earnings play I'd consider putting on here, with the June 19th 17 short straddle paying 2.42 at the mid price and the skinny June 19th 15.5/19 paying 1.09, although the markets are wide here, so would look to recheck setup pricing running into Tuesday close if you're keen on putting that play on.
EXCHANGE-TRADED FUNDS SCREENED FOR >35% 30-DAY AND ORDERED BY RANK WITH JULY AT-THE-MONEY SHORT STRADDLE PRICE AS A FUNCTION OF STOCK PRICE SHOWN:
SLV (48/38), 10.8%
EWW (44/42), 11.6%
GDXJ (43/61), 17.7%
TQQQ (41/87), 24.3%
GDX (40/48), 14.5%
XBI (38/41), 11.8%
EWZ (36/55), 15.2%
XLE (35/47), 13.2%
SMH (31/28), 11.4%
XOP (24/57), 17.1%
USO (23/86), 21.8%
... AND ORDERED BY AT-THE-MONEY SHORT STRADDLE PRICE AS A FUNCTION OF STOCK PRICE SCREENED FOR >15%:
TQQQ (41/87), 24.3%
USO (23/86), 21.8%
GDXJ (43/61), 17.7%
XOP (24/57), 17.1%
EWZ (36/55), 15.2%
GDX (40/48), 14.5%
Notes: Here, TQQQ looks to provide the best bang for your buck, but I generally shy from leveraged products unless I can't resist doing something in the direction of the way the fund is set up. (See, TQQQ Post Below).
Secondarily, USO/XOP have some juice, as do GDXJ/GDX, with the hammered EWZ rounding out the top five.
Pictured here is a GDXJ July 17th (53 Days 'Til Expiry) 40/56 short strangle paying 2.75 at the mid price with delta/theta metrics of -1.52/5.55.
BROAD MARKET, ORDERED BY AT-THE-MONEY SHORT STRADDLE PRICE AS A FUNCTION OF STOCK PRICE:
IWM (47/40), 10.9%
QQQ (29/29), 8.3%
EFA (29/26), 6.8%
SPY (28/29), 7.8%
Notes: Here, the juice is in small caps, with the IWM July 17th, 16 delta strike 115/151 short strangle paying 3.39 at the mid price and delta/theta of -.1/8.27.
IRA DIVIDEND PAYERS ORDERED BY RANK:
EWA (47/39), 36.8% above 52 week lows;
IYR (44/36), 31.5% above 52 week lows.
XLU (38/25), 30.3% above 52 week lows.
EWZ (36/55), 25.1% above 52 week lows.
HYG (31/17), 20.5% above 52 week lows.
EFA (29/26), 24.6% above 52 week lows.
SPY (28/28), 35.4% above 52 week lows.
EMB (22/18), 24.6% above 52 week lows.
TLT (20/18), 29.2% above 52 week lows.
Notes: I'm sticking the "above 52 week lows" out there just to show how much of everything has bounced, so it wouldn't have taken a genius to wade into the market, sell some out-of-the-money short puts in high implied and made out in some fashion. (See IYR, EFA, HYG Short Put Ladder Posts, Below). Conversely, that bounce means that things weren't as cheap as they were at the lows, so it may be time to sit back and wait for another sell-off or high implied event to wade back in with acquisitional setups, with the general elections in November being the next possible opportunity. In the mean time, I'll continue to work the call side in the covered calls I've got on now.
THE WEEK AHEAD: 3 POTENTIAL BRAZILIAN ZEBRAS -- ITUB, PBR, EWZEver seen a "Brazilian Zebra"?
Pictured here is an ITUB (35/76) Zero Extrinsic Back Ratio Spread (hence the colorful acronym, "ZEBRA") in the Brazilian financial, ITUB. Since Zebras are high delta directional plays, they're seen as synthetic stock substitutes and can be deployed both on the call side (long), as well as on the put side (short), with the general advantages being their buying power effect relative to being in a one lot, as well as their being defined risk with max loss limited to the debit paid for putting the play on.
Here's how I set these up:
1. Start out by looking at selling a front month at-the-money short call (around the 50 delta).
2. Look at buying two times the number of long calls such that the front month short pays for all the extrinsic in the longs, which should result in a break even that is or near where the underlying is currently trading.
Here, the July 4 short call is paying .45, with the two December longs costing 2.17 each or 4.34 in total. The setup consequently costs a 3.89 debit (4.34 - .45) to put on. Since the long calls are doubled up, one-half 3.89 equals 1.945, so your break even is that amount plus the long call strike at 2.00 or 3.945 versus 4.08, which is where the stock finished on Friday. Put another way, the credit you collect for the 4 short call exceeds all of the extrinsic in the longs by about .13 (4.08 - 3.95 = .13).
From a trade management standpoint, I view these setups in two separate parts: (1) An in the money long call at the 2.00 strike; and (2) A December/July 2/4 long call diagonal.
Assuming favorable movement, I look at taking the long call diagonal off at or near max (here, the width of the spread or 2.00), and then letting the remaining long call "ride," taking it off in profit or, alternatively, selling call against, depending on how it goes. Consequently, the max profit is "undefined," since -- theoretically -- the extra long call can go to infinity. Conversely, I will look to roll the short call out to reduce cost basis further in the event the stock doesn't move or goes down.
Two other candidates for this type of setup: PBR (26/69) and EWZ (36/55) -- both options liquid and at the low end of their 52-week ranges.
In the case of the former, the PBR October/July 5/7 Zebra costs 4.06 to put on with a break even of 7.03 versus 7.06 spot (so you get into a play for 57.5% of what you'd pay to buy and cover a one lot at market); the latter: the EWZ September/July 19/25, 10.97 with a break even of 24.48 versus 24.66 spot and delta of 120.33 (you get into a play for 44.5% of the cost of getting into a one lot at 24.66).
OPENING (IRA): EWZ SEPTEMBER/JUNE 17/19 SHORT PUT LADDER... for a 1.44 credit.
It's not much of a ladder with only two rungs, but there's no July currently (there will be one after May opex, after which I'll consider adding a third rung).
An acquisitional play in high rank/implied (53/66) to potentially grab this divvy yielder (5.15%) at a discount.
THE WEEK AHEAD: AMD, TWTR, FB EARNINGS; SLV, GDX, GDXJ; EWWEARNINGS:
There are a ton of earnings coming out next week, with the most options liquid plays to be had in AMD (44/71), TWTR (77/80), and FB (59/50).
Pictured here is a delta neutral short strangle in AMD in the June cycle (54 days). Camped out around the 20 delta strikes, it paid 3.12 as of Friday close (5.6% as a function of share price) with break evens at 42.88/73.12. Go defined risk with a five-wide iron condor in the same cycle -- the 42/47/70/75, and you'll get paid 1.48, 29.6% return on capital at max, 14.8% at 50%.
A TWTR June 19th 24/36 short strangle paid 1.83 (6.4% as a function of share price) as of the Friday close; the FB June 19th 165/220, 7.07 (3.7% as a function of share price). Consequently, if you're looking for "buck bang" as a function of share price, your best best is going with the TWTR play, with its higher 30-day.
EXCHANGE-TRADED FUNDS WITH 30-DAY >35% ORDERED BY RANK:
SLV (83/51)
GDXJ (72/79)
GDX (64/63)
EWW (61/60)
XLU (60/40)
EWZ (57/72)
XLE (55/66)
SMH (46/46)
XOP (42/81)
USO (33/192)
USO is going to be undergoing a 1:8 reverse split after the close of markets on April 28th, so you may want to steer clear of entering an options play before then and/or close out any options plays you've got on here to avoid being stuck with nonstandards post-split. As if it wasn't apparent, the juice is in precious metals/miners (SLV, GDX/GDXJ) and oil-related exchange-traded funds (XOP, XLE, USO), with some secondary squeezings to be had out of Mexico (EWW), Brazil (EWZ), and semicons (SMH).
With respect to EWW and EWZ, I considered each for a potential IRA trade, since both pay dividends, although they're only twice a year and somewhat "uneven." (EWW yield shows as 4.93%; EWZ as 5.44%). The EWW June 19th 22 was paying .78 as of Friday close (3.7% return on capital at max), the EWZ June 19th 18, .96 (5.6% return on capital at max), so may consider doing one or the other as a potential aquisitional play.
BROAD MARKET EXCHANGE-TRADED FUNDS WITH 30-DAY >35% ORDERED BY RANK:
TQQQ (60/111)
IWM (56/45)
EEM (46/39)
QQQ (43/36)
SPY (39/35)
FUTURES WITH 30-DAY >35% ORDERED BY RANK:
/NG (98/95)
/SI (83/500
/RTY (56/55
/NQ (43/36)
/ZC (43/36)
/ES (39/36)
/CL (33/948)
VIX/VIX DERIVATIVES:
VIX finished the week at 35.93, well in "high volatility" territory. However, the May and June contracts (36.95 and 35.70, respectively), finished in contango (it's been a while), with the rest of the term structure in backwardation.
EWZ at decision Point!Dear Investor,
After falling about 60% from this year's High, the EWZ has started a correction movement in "W" shape.
If the price goes above $26,50, I believe the share will return to trade between $30 and $35 and it'll close the first GAP opened by the coronavirus crisis.
I started my LONG position in this share since $20,00. But, if you want to get in this trade, I think the better entry level is when the price breaks up the $26,50.
Good investments for all.
Best regards,
Lucas Sampaio
________________________
Olá Investidor,
Depois de cair cerca de 60% da máxima desse ano, o EWZ está fazendo um movimento em formato de W.
Se o preço superar $26,50, acredito que alcançará a faixa de preço de $30 a $35, fechando o primeiro GAP desde a forte queda da crise do cornavirus.
Eu já estou comprado desde os $20, mas se quiser entrar nesse trade, acredito que o melhor ponto de compra é após o rompimento do $26,50.
Bons investimentos a todos!
Abraços.
Lucas Sampaio
Emerging markets at 2008 level EWZ/BrazilEmerging markets are at 2008 levels, as IMF says this is going to be WORSE than 2008. The rest of the world still needs to catch up, SPX is at Dec 2018 level and this virus is way worse than a double rate increase.
Ask yourself, are you better or worse off than Dec 2018?
THE WEEK AHEAD: A PREMIUM RICH MARKETOPTIONS LIQUID EARNINGS ANNOUNCEMENTS:
MU (77/112)
NKE (74/103)
EXCHANGE-TRADED FUNDS ORDERED BY IMPLIED VOLATILITY RANK:
EWZ (91/132)
USO (89/210)
XLU (84/76)
GDXJ (82/141)
XLE (77/109)
EWW (76/105)
SMH (73/105)
TLT (71/47)
XOP (63/154)
SLV (73/79)
GLD (63/37)
FXI (61/63)
GDX (57/106)
BROAD MARKET ORDERED BY IMPLIED VOLATILITY RANK:
IWM (76/71)
EEM (74/73)
SPY (73/66)
QQQ (73/60)
EFA (54/53)
VIX/VIX DERIVATIVES
VIX: 66.04
/VX APRIL: 62.00
/VX MAY: 56.95
/VX JUNE: 49.95
MUSINGS:
On Margin:
As you can see by the chart showing the top five or so exchange-traded funds having the highest implied volatility ranks, this is largely a closely correlated sell-off. Because of this, I'm somewhat hesitant to pile into a bunch of nondirectional stuff simultaneously, if at all. If we get relief from the selling, these very same instruments could whip back to the call side in closely correlated fashion, leaving me with a bunch of tested call side; whereas now I'm just put side tested (and how). Naturally, this means I have to put up with being far more directional than I would ordinarily be, but these things happen and being patient and mechanical with how you manage current positions will be more productive in the long-term than going bonkers here and bailing out of everything in panic.
Unfortunately, this likely means that I will be taking on far more shares of stock than I ordinarily like to hold on margin and then reducing cost basis over time via covered call. I'm always prepared for that, but being in stock on margin isn't buying power efficient, although you always have to plan somewhat for that possibility and go with the flow if taking on shares is really the best way to work yourself out of the trade.
In The IRA:
As pure luck would have it, leaving my SPY position monied throughout this nonsense (as well as erecting some additional call diagonals at market highs as delta cutters) has served me well. This wasn't particularly prescient or a stroke of genius; I was just doing what I felt I had to do to protect the largest element of my retirement portfolio at a point at which it made the most sense to do that and nothing else. Anyone else who did that and got lucky isn't a guru. No one saw this crap coming, and if they're saying they're a genius, well, I say you're free to call bullshit.
Is this an opportunity to pick up things on your shopping list? Maybe. I've taken this opportunity to ladder some out-of-the-money short puts out in a few things that I've had on that list for ages -- XLU, IYR, EFA, and HYG; all dividend generators which have been just far too pricey to deploy the frustratingly large bit of dry powder I've had sitting on the sidelines for ages as the market inexplicably ground up to more and more ridiculous valuations. Will I get in at the best possible prices? The jury's out. I will be getting in far lower than at the market highs we saw just a few weeks ago (assuming price stays below the rungs of my ladders) and won't let anyone talk me out of the proposition that lower is always better in your retirement account even if I don't hit the lows perfectly.
The basic strategy here, after all, isn't largely about share price; it's about assembling a portfolio that will pay out dividends regardless of growth and in which you can reduce cost basis over time via short call. It's three-legged: dividends, short call premium, and (if it happens) growth. If the grand arc of time has taught us anything, it's that growth may be an "average given" over the entire life of the market, but may not be over shorter time frames.
Volatilidade EWZ x SPXOlá Investidor,
Hoje estamos há praticamente 1 mês sobre a pressão da volatilidade gerada pelo coronavírus.
Em análise comparativa, temos que o EWZ tem se mostrado mais volátil que o SPX , que já está nas suas máximas.
Estamos sentido essa volatilidade no dia-a-dia no IBOV , que tem apresentado movimentos absurdamente desproporcionais.
A bolsa brasileira caiu demais, existem muitos papéis bem descontados e descolados de seus fundamentos, mas com essa volatilidade todo cuidado é pouco.
A faixa que estamos é zona de compra, mas comprar com cuidado é importante. Use e abuse da margem de segurança se for investir no longo prazo, compre nas quedas, evite comprar nos momentos de alta, pois com essa volatilidade de um dia para outro poderá sentir bastante.
Estou acompanhando de perto a volatilidade e as oportunidades que estão surgindo com as distorções apresentadas e sempre quando possível irei compartilhar com vocês.
Um grade abraço e bons investimentos.
Lucas Sampaio
Conexão WallStreet
________________________________________________________________
Dear Investor,
Today we've been practically 1 month under the pressure of the high volatility created by the coronvirus.
In comparative analysis, the EWZ has shown to be a little bite more volatile than the SPX , which is already at its historical maximum.
We are feeling this volatility on a daily basis in the IBOV which has shown absurdly disproportionate movements.
The brazilian stock martket fell to much, there are many shares with a great discount and detached from their fundamentals, but with this volatility everyone needs to be careful.
This currently range (60-70k points - IBOV ) is a BUYING area, but you need buying carefully. You have use a lot the safety margin. If you are going to invest in the long term, buy when the stocks fall, and mostly important avoid buying in high moments in this extremely volatility time.
I'm closely monitoring the volatility and opportunities that are arising with the distortions presented. Whenever possible I'll share with you my ideas.
Best regards and good investments for all!
Lucas Sampaio
PBR caiu demais! Excelente oportunidade de compra! PBR caiu demais! Excelente oportunidade de compra!
A NYSE:PBR caiu demais na crise do Coronavirus e da guerra comercial do Petroleo. O papel caiu mais que as demais empresas do setor, mais que o proprio petroleo e mais que o AMEX:EWZ , indice que ela compoe e tem grande representacao.
Estou efetuando compras no papel desde $11.00. E como meu unico receio esta na continuidade da desvolarizacao do petroleo, fiz uma trava na operacao, comprando PUT e trava de baixa no CL1! para me proteger e principalmente aumentar posicoes em NYSE:PBR se o petroleo continuar caindo.
Trade arriscado, mas com boa assimetria positiva.
Um grade abraco,
Lucas Sampaio
PBR fell too much! Excellent BUY opportunity!
NYSE:PBR fell too much in the coronavirus crisis and the oil trade war. The stock fell more than other companies in the same sector, more than oil iself, and more than AMEX:EWZ , index tha it composes and has a great representation.
I`ve started to buy since $11.00. And as my only fear is in the continuation of the oil fallout, I put a stop to the operation, buying a PUT and PUT Bear Spread at CL1! to protect me and mainly increase positions in NYSE:PBR if the oil continues to fall.
It's a very risky trade, but with a good positive asymmetry.
Best regards,
Lucas Sampaio
THE WEEK AHEAD: ADBE, ORCL EARNINGS; GDX/GDXJ, USO/XOP/XLE, EWZEARNINGS:
ADBE (89/65) and ORCL (77/60) both announce earnings on Thursday after market close and have the metrics I look for in earnings-related volatility contraction plays (>70% rank; >50% 30-day implied).
Pictured here: a short strangle paying 11.65 at the mid price camped out around the 16 delta. Its defined risk counterpart: the 265/275/395/405 ten-wide iron condor pays 2.46. Off hours markets are showing wide, so look to price setups out during the regular session.
The delta neutral ORCL April 17th 40/55 short strangle pays 1.45.
EXCHANGE-TRADED FUNDS WITH EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE PAYS >10% OF THE STOCK PRICE:
GDX (99/51), April
USO (97/66), April
GDXJ (96/58), April
XLE (97/75), April
EWZ (92/52), April
XOP (92/51), April
TLT (91/41), May
EWW (91/48), April
XLU (90/43), June
SMH (84/56), April
FXI (65/33), June
BROAD MARKET WITH EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE PAYS >10% OF THE STOCK PRICE:
EFA (87/37), June
QQQ (83/43), April
IWM (82/46), May
SPY (78/41), May
EEM (70/37), June
FUTURES:
/CL (97/65)
/GC (84/25)
/SI (70/30)
/NG (65/48)
/ZS (30/19)
/ZC (21/22)
/ZW (13/27)
VIX/VIX DERIVATIVES:
VIX finished the week at 41.94, so it has been a rough ride for shorters who were in plays before this volatility expansion (points to self). The basic watch word is "patience"; volatility will abate at some point in time ... .
OPENING: EWZ JUNE 19TH 37/50 SHORT STRANGLE... for a 1.26 credit.
Metrics:
Max Profit: $126
Max Loss/Buying Power Effect: Undefined/$440
Credit Received/Buying Power Effect Ratio: 28.6%
Delta/Theta: -1.53/1.32
Notes: Selling a directionally neutral short strangle in the first expiry in which the at-the-money short straddle pays greater than 10% of the stock price with the intention to delta under hedge to maintain net delta < theta if possible.
THE WEEK AHEAD: ROKU EARNINGS; USO, SMH, EWZ, GDXJEARNINGS:
ROKU (64/83) announces earnings on the 13th (Thursday) after market close and looks to be the best play out of earnings announcements occurring next week from a volatility contraction standpoint.
Pictured here is a fairly straightforward short strangle camped out around the 17 delta in the March cycle, paying 5.62 on buying power effect of around 12.50 (45% credit received/effect ratio) on margin. For those looking to define their risk, consider the 90/100/150/160 iron condor, paying 3.37 on buying power effect of 6.63 (50.8% credit received/effect ratio) or some iteration of that where you look to receive one-third the width of the widest wing in credit. There is some call side skew here which you may to consider accommodating via a ratio'd short strangle or a "double double."*
EXCHANGE-TRADED FUNDS WITH EXPIRY IN WHICH AT-THE-MONEY SHORT STRADDLE IS PAYING GREATER THAN 10% OF STOCK PRICE:
XLE (59/22), July
FXI (54/24), August
SMH (51/27), May
USO (48/39), April
XOP (45/36), June
EWW (43/19), September
EWZ (33/27), May
GDXJ (15/27), May
GDX (10/24), June
My general tendency here has been to go with the shortest duration that's paying first (assuming that I'm not already in a play), and then consider longer-dated thereafter. Here, the shortest duration that's paying is in USO (April), followed by SMH, EWZ, and GDXJ (May), and then XOP and GDX (June).
BROAD MARKET FUNDS WITH EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE IS PAYING GREATER THAN 10% OF STOCK PRICE:
EFA (45/13), December
EEM (42/20), September
QQQ (37/19), September
IWM (34/18), September
SPY (30/15), November
I've been working SPY longer-dated for quite some time now just to have something on in a constant state of theta burn where shorter duration isn't paying. Just for comparison's sake, the EEM September 37/49 is paying 1.14 on a buying power effect of 4.35 (26.2%); the QQQ September 195/257, 5.77 on a buying power effect of 22.94 (25.2%); and the IWM September 142/183, 3.78 on a buying power effect of 16.50 (22.9%) versus the SPY November 280/367, 8.23 on a buying power effect of 33.24 (24.8%).
FUTURES (EXCLUDING CURRENCY/TREASURIES):
/CL (52/40)
/ES (51/16)
/NG (30/39)
/SI (30/18)
/ZC (29/18)
/GC (24/11)
/ZS (15/18)
/ZW (8/37)
VIX/VIX DERIVATIVES:
VIX finished the week at 15.47, with the February, March, and April /VX contracts going for 16.07, 16.27, and 16.70, respectively. The term structure has lost a good deal of the steepness we were enjoying just a few weeks ago when M1-2 contango was at a whopping 19.16% and M4-7 at 6.24% (it's currently 1.25 and 3.45%, respectively) and my tendency would be to probably wait until the February contract drops off to see if a term structure trade is in the offing. They're not exactly paying me huge to go, for example, with an April setup over a March one, with the differential being a scant .43.
* -- E.g., the 2x90/2x95/155/165 iron condor paying 2.91.
OPENING: EWZ JUNE 19TH 39/54 SHORT STRANGLE... for a 1.46 credit.
Notes: Going out to the first expiry in which the at-the-money short straddle pays greater than 10% of the stock price and selling the 16's with the intent to potentially do additive delta adjustments over time.
From a portfolio-wide perspective, I have a good sprinkling of longer-dated core exchange-traded fund positions to start out the year: some SPY, SMH, XBI, and XOP, around which I'll play single name from time to time, as well as my standard short volatility stuff in VIX, VXX, and UVXY.
THE WEEK AHEAD: USO, EWZ, XLF; VIX/VIX DERIVATIVESEARNINGS:
Earnings kick off in earnest this week with a bevy of financials (WFC, GS, JPM, C, BAC, MS).
Generally speaking, I haven't played these in the past due to low background implied, and nothing has changed in that regard this go-around from a premium selling standpoint: WFC (30/21), GS (27/24), JPM (20/21), C (16/23), BAC (0/22), MS (0/24).
That being said, it looks like the financial sector exchange-traded fund XLF (5/16) has put in a multi-year double-top, so I could see taking a bearish assumption directional shot on the notion that earnings in this sector may disappoint in a low interest rate environment. For example, the XLF February 21st 30/32 long put vertical costs 1.04/contract to put on, has a max loss metric of .96 and a break even of 30.96 versus a Friday close of 30.69, which are the kind of the risk one to make one/break even at/near where the underlying is currently trading metrics I like to see out of these.
EXCHANGE-TRADED FUNDS WITH THE FIRST EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE PAYS >10% OF STOCK PRICE:
UNG (36/40), February
SLV (33/20), July
USO (32/32), April
EWZ (29/26), June
GLD (26/12), January '21
Pictured here is an EWZ 20-delta short strangle set up in the first expiry in which the at-the-money short straddle is paying greater than 10% of the stock price, 1.91 credit, delta/theta 0/1.41.
Although I would ordinarily go with the underlying paying in the shortest duration, we will start to run into seasonality issues with UNG in the February or March cycles (depending, of course, on Mother Nature), so would rather not hit that underlying non directionally here. And USO can be somewhat of a pain to trade due to its smallness.
BROAD MARKET WITH THE FIRST EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE PAYS >10% OF STOCK PRICE:
EEM (66/16), September
EFA (20/11), December
SPY (14/12), November
QQQ (9/17), September
IWM (0/15), September
Well, we're in a volatility lull here, so this comes as no surprise that shorter duration isn't paying.
VIX/VIX DERIVATIVES:
VIX finished the week at 12.56, with the March, April, and May /VX contracts trading at 16.04, 16.56, and 16.80, respectively, so term structure trades remain viable in those months.
VXX and UVXY -- my go-to derivatives instruments -- both hit new 52 week lows last week, and VXX finished the week at 14.12, UVXY at 11.59. Although VIX has room to trundle lower from here, it probably wouldn't be a bad thing to pull off a few units in profit put on higher up the ladder and then wait for the next >25% pop in VIX (which would be a modest pop at 16 or so) to start legging back in.
EWZ, iShares Inc. MSCI Brazil ETF - Breakout on Bullish PatternAMEX:EWZ
Bullish set up and resistance breakout on the ETF representing the Brazilian market.
As always the ascending triangles are among our most common traded patterns because they have a profit realization degree of 50% with an average Profit/Loss Ratio of 3:1.
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