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EWZ

THE WEEK AHEAD: XLU, XRT, EEM, FXI DIRECTIONALS, EWZ PREMIUMWith volatility at somewhat of an ebb here, I'm eyeing exchange-traded funds for directional plays in lieu of just hand sitting. The setup pictured here is of a XLU diagonal with the long dated option out in Dec, the front month in August. I would prefer setting this up as a skip month (Aug/Oct), but an Oct expiry isn't available yet. Here are the metrics: 5.43/contract debit, max profit on setup 1.57/contract, break even at 49.43 vs. 49.54 spot, debit paid/spread width ratio 77.6%. The debit paid/spread width ratio is a little higher than I'd ordinarily like (<75% is ideal), but it's also longer-dated, so I've got extra time to reduce cost basis if I need to. I'd look to take profit at 20% of what I put it on for (1.09) rather than going for max, which assumes a finish above the short call strike. A possible variation is to buy the Dec 44 and sell the Aug 50: 5.04 db/contract, max profit on setup .96/contract, break even at 49.04, debit paid/spread width ratio 84%. The variation lowers your break even by a half strike, thus giving you a smidge more of downside pro, but also lowers your profit potential, although you can certainly roll out any in the money short call to bring in additional credit should you want to go for greater than what the max was on setup. Other candidates for this sort of setup include: XRT (within 5% of its 52 week high; downside put diagonal), EEM (upside call diagonal; at long-term support), FXI (upside call diagonal; at long-term support). The basic setup for these is to sell the front month 30-delta strike and then buy a back month long such that your break even is slightly below where it's trading (in the case of upside call diagonals; you want the break even above spot with downside put diagonals) without paying more than 75% of the width of your spread. The one exchange traded fund that still has some juice in it is EWZ, with a background implied of around 34%. Although it's a little early to cycle into August (61 days until expiry), the Aug 17th 29/37 short strangle is paying .90/contract. Given the way it's imploded, however (it's near its 52-week low), I could also see taking a bullish directional shot here, too: the Aug/Dec 28/35 upside call diagonal costs 4.88 to put on, has a max profit of 2.12 on setup, a break even of 32.88 vs. 33.04 versus spot, and a debit paid/spread width ratio of 69.7%.
AMEX:XLU
by NaughtyPines
1
THE WEEK AHEAD: PBR, USO, GE, T, ORCL, EWZWith various things Brazilian in implosion mode, it's no surprise that PBR and EWZ have high implied volatility here. PBR: Bullish Assumption Setups: The July 20th 30 delta 9 put is paying .43/contract, resulting in an 8.57 break even, which isn't very compelling, but might appeal to some smaller account holders who are willing to hold the short put until near worthless and or roll for duration/further cost basis reduction should the worst not be over (check out the weekly). The natural alternative is a synthetic covered call with the short put at the 70 delta 11 strike, which pays 1.55, and gives you a 9.55 break even. I would work the synthetic as a "money, take, run" affair and look to take profit at 50% max or sooner. Neutral Assumption Setups: The July 20th 10 short straddle pays 1.56 at the mid, with break evens at 8.44 and 11.56. Generally, I look to take profit on these at 25% (here, .39), but would naturally be prepared for a bumpy ride and to make adjustments as things unfold. USO: I generally don't like this instrument a ton as a petro play due to its size, with my preferred go-to's being XOP, XLE, and (when in a pinch), OIH. However, if you're willing to go a little larger than you usually would with contracts, it can be productive. The July 20th 13 short straddle pays .93/contract and is skewed quite short delta wise (-20.93). To neutralize some of that, I could see doing a July 27th "double straddle" with one straddle at the 13 and one at the 13.5 (you need to move to the weeklies to get the half strikes). That would pay 2.01 per contract, give you break evens at 12.25 and 14.25, and reduce the directionality to -9.67 delta. Taking profit on the whole shebang at 25% max (.50) wouldn't be horrible. GE and T: Both have earnings around the July monthly; I'd hold off putting on plays, opting instead to play for vol contraction around earnings ... . ORCL: Announces in 9 days, so sit on your hands and play the announcement. EWZ: With underlyings under $50, I've been short straddling or iron flying. The July 20th 34 short straddle pays 3.09, with break evens at 30.91 and 37.09. Naturally, that isn't for everyone, since short straddles and iron flies generally skew out delta-wise fairly immediately, so they're not "nervous nellie" trades or trades for the "delta anal"; for those kids, the July 20th 31/37 short strangle camped out around the 20 delta strikes might make more sense; it's paying .98.
NYSE:PBR
by NaughtyPines
THE WEEK AHEAD: HPQ, COST, XOP, OIH, EWZ, IWMHPQ announces tomorrow after market close; COST on Thursday after market. Neither underlying's rank/implied vol metrics are particularly compelling, however, with the former's implied at 29.6%, the latter at 23.5%. Even so, the 68% probability of profit, ~20 delta COST June 15th 188/207.5 short strangle's paying 2.31; managed early (<50% max), that could make for a nice winner. The only thing that makes remote sense in HPQ is a short straddle, with the June 15th 22 paying a paltry 1.29; early management at 25% max would yield a .32 winner. As far as non-earnings single name plays are concerned, here are the top five underlyings ranked by background implied volatility: TSLA (47.8%; rank 31.1%), P (47.5%; rank 1.4%), RIG (46.2%; rank 11.1%), X (43.2%; 19.9%), and TWTR (40.5%; 15.2%). TSLA, with the highest background implied of the bunch, is paying out 9.38 for the 69% probability of profit July 20th 235/325 short strangle camped out at the 17 delta strikes, with its defined risk counterpart, the 225/235/325/335 paying 2.57 at the mid, with a less than ideal payout of less than one-third the width of the wings. In the exchange-traded fund arena: XOP, OIH, and EWZ round out the top-implied volatility symbols, coming in at 34.8%, 31.8%, and 31.5%, respectively. The XOP July 20th 37/45 short strangle is paying 1.24 with a probability of profit of 68% with break evens at 35.75/46.25; the 41 short straddle -- 3.97 with break evens at 37.03/44.97. With the short strangle, I'd be shooting for 50% max (.62); the short straddle, 25% max (.99). The EWZ July 20th 37 short straddle* is paying 3.47 with break evens at 33.53/40.47; the corresponding iron fly with the longs camped out at ~10 delta -- the 31/37/37/43, pays 3.14 with risk one to make one metrics (max loss of 2.86 versus 3.14 credit received). Lastly, a directional short idea in IWM, pictured on the chart. The setup is a Poor Man's Covered Call or "downside put diagonal." Here are the metrics: 7.23 debit, max loss on setup: 7.23, max profit on setup: 4.77/contract, break even on setup: 161.77, debit paid/spread width ratio: 60.25%. Max profit is realized on finish below the short at expiry, but I'd look to take profit early at 20% of what I put the trade on for (.2 x 7.23 = 1.44), rolling the short put out "as is" on significant decrease in value. * -- My recent tendency has been to go with the short straddle/iron fly in underlyings <$50, bringing in more credit at the door and then proceeding to "manage early" (at 25% max).
AMEX:IWM
by NaughtyPines
2
THE WEEK AHEAD: TSLA, RIG, X, EWZWith the vast majority of options-liquid earnings plays in the rear view mirror, premium selling becomes a search for just plain Jane high implied volatility underlyings. This week, TSLA, RIG, X round out out the top implied volatility single names; EWZ, the exchange-traded fund top implied volatility play. Here are some possible nondirectional setups, which are naturally preliminary ... . TSLA: The July 20th 225/330 short strangle is paying 10.15 with a 71% probability of profit metric and break evens at 214.85/340.15. Its defined risk counterpart, the 220/230/330/340 iron condor, is paying 2.66 at the mid with a probability of profit of 62% and break evens at 227.34/332.66. Ideally, I'd like to see a 70% probability of profit plus credit received greater than one-third the width of the wings, however, but would be hesitant to bring in the wings on this underlying, since it has a tendency to move big. RIG: The July 20th 14 short straddle is paying 1.87 with break evens at 12.13/15.87. Throw on a couple of cheap long wings to convert it into an iron fly -- the 11/14/14/17, and you bring in buying power reduction quite a bit over naked without giving up a huge amount of credit: it's paying 1.61 versus a max loss of 1.39 with break evens at 12.39/15.61. With iron flies, I like to see the setup pay at least 1/4 of the width of the longs (here, 6-wide), so this looks like a good, small buying power effect play. X: The July 20th 32/42 short strangle is paying 1.69 with a 69% probability of profit, break evens at 31.18/42.82. The corresponding 29/32/42/45 iron condor: .82 with break evens at 31.18/42.82. As with the Tesla play, I would like to see more out of the defined risk setup -- one-third the width of the wings in credit ... . EWZ: The July 20th 34/42 short strangle is paying 1.13 with a probability of profit of 69% and break evens at 32.87/43.13; the 31/34/42/45 iron condor, .75 with 33.25/42.75 break evens and a 66% probability of profit. Alternatively, the July 20th 33 short straddle is paying 3.88 with 34.12/41.88, with the corresponding 31/38/38/45 iron fly paying 3.50 with a 3.50 max loss metric and break evens of 34.50/41.50. As with the RIG iron fly, the cheap longs bring in buying power effect quite a bit over naked without giving up a ton in credit received ... .
NASDAQ:TSLA
by NaughtyPines
OPENING: EWZ MAY 18TH 39/41/48/50 IRON CONDOR... for a .62/contract credit. Metrics: Probability of Profit: 57% Max Profit: $62/contract Max Loss: $139/contract Break Evens: 40.39/48.61 Variants: May 18th 41/48 short strangle, 1.30/contract at the mid; break evens at 39.70/49.30. May 18th 38/41/48/51 iron condor; .75/contract at the mid; break evens at 40.25/48.75. Notes: With background implied remaining fairly high (33.4%), I'm going small with this defined risk setup in the kid's small account, but using the short strangle variant in mine. Looking to take profit on both the iron condor and the short strangle at 50% max.
AMEX:EWZ
by NaughtyPines
THE WEEK AHEAD: XOP, EWZ, GDXJIt's somewhat a lather, rinse, repeat of last week, given the fact that we're kind of in-between earnings seasons, with the next to kick off here in a couple of weeks. XOP:* With the underlying somewhat in the middle of its range, I'm more inclined to go directionally neutral here, either via short strangle or iron fly. The 27 delta-ish May 18th 33/38 short strangle is paying 1.26/contract with break evens at 31.74/39.26; for the less aggressively inclined, the 32/39 is paying .84. For both of these, look to take profit at 50% max. The May 18th 30/35/35/41 dynamic iron fly** is paying 2.75 with break evens at 32.25/37.75. Look to take profit at 25% max. EWZ: "The Brazilian" is perennially frisky ... . The May 18th 41/49 is paying 1.13 at the mid with break evens at 39.87/50.13, with the 30/35/35/41 dynamic iron fly paying 3.34. GDXJ:*** My general tendency with GLD, GDX, and GDXJ are bullish assumption setups on weakness. Unfortunately, GLD is at a bit of a high here, and there is divergence between GDX/GDXJ in terms of strength versus the commodity, implying that weakness in gold may drag GDX/GDXJ down, when they're already toward the weak side of their ranges to begin with. Consequently, it may pay to be patient and wait until GDXJ drops to the bottom of its range between 30 and 31 before pulling the trigger on something bullish. Caveats aside, here are three bullish assumption setups: The "spack"**** trade: May 18th 30 short put for .45 with a break even of 29.55. Ride the short put to expiry. If assigned, proceed to sell calls against at or above your cost basis (29.55). The Synthetic Covered Call: May 18th 34 short put (70 delta) for 2.40 with a break even at 31.60. Look to take profit at 50% max (i.e., 1.20/contract). Otherwise, roll out for duration "as is" for additional credit or proceed to cover at or above cost basis (31.60) if assigned. The Poor Man's: May 18th 34 short/Aug 17th 26 long, 6.01 debit for an 8 wide (75% debit/width ratio) with a break even of 32.01 versus 32.15 spot. Look to take profit at 20% of what you paid to put the setup on for (i.e., 1.20/contract). * -- I'm in an XOP May 32/39 I put on last week for around a 1.00/contract. ** -- An iron condor won't pay one-third of the width of the wings here. *** -- I'm already in a long-dated GDX net credit diagonal, so won't be partaking of GDXJ here. **** -- Short Put Acquire Cover.
AMEX:XOP
by NaughtyPines
THE WEEK AHEAD: XOP, EWZ, EEM, QQQ, AND VIXEven though earnings season is winding down to a few names (BB, GME) next week, there's stuff to play in sectors or broad market, with the May expiry (54 days until expiry) coming into view for plays. The XOP May 18th 31/39 short strangle (19 delta) is paying .98 at the mid with the slightly more aggressive 25 delta 32/38 paying 1.38. If you're looking to go defined risk, you'll probably have to go wide iron fly (e.g., the May 18th 29/35/35/41 iron fly is paying 3.05 with a max loss metric of 2.95). The EWZ May 18th 40/48 short strangle (22 delta) is paying 1.38; the more aggressive 29 delta 41/47, 1.86. The 38/41/47/49 delta neutral iron condor is paying just a smidge over a buck at 1.01. The EEM May 18th 44/50 short strangle (25 delta) is paying 1.18. If you aggress in toward the 30's, a 42/45/49/51 delta neutral iron condor will pay just over a buck with break evens around the expected move for the expiry. QQQ: one word -- juicy, particularly if you can "go naked." The May 18th 145/170 20 delta short strangle is paying 3.62 at the mid. The 142/145/170/172 delta neutral iron condor is showing .86 at the mid after hours, but the bid/ask is wide. I wouldn't bother with a defined risk play for less than 1.00/contract ... . Lastly, the VIX. Futures term structure is in backwardation which sets up a rare and interesting play, which I've described in a separate post (see below).
AMEX:XOP
by NaughtyPines
THE WEEK AHEAD: ADBE, OIH, XOP, GDXJ, EWZ, VIXWith the VIX dropping hard below 15, some of the juice has poured out of the cup ... . Even so, there remain a few plays in the market. ADBE announces earnings on the 15th (Thursday) after market close. The volatility metrics don't quite meet my criteria for a volatility contraction play (56/32), but the March 23rd 210/323.5 short strangle is paying 3.80 at the mid with that setup's defined risk counterpart, the 205/210/232.5/237.5 iron condor, paying 1.69, just a smidge over one-third the width of the wings. These are off hours quotes, so neither of these may look as attractive during regular market hours when things tighten up. Nevertheless, worth keeping an eyeball on. The remainder of earnings announcements on tap for next week either involve poor liquidity underlyings or have implied volatility in the lower half of their 52-week range, making them singularly unattractive for the standard play. In the exchange-traded fund neck of the woods, OIH and XOP retain fairly decent background implied volatility at 31, as does the junior gold miners fund, GDXJ. My preference is to pull the trigger on these underlyings directionally. With GDXJ, I would like slightly lower (sub-30 would be great). A touch of caution is warranted, however, since there is a bit of divergence between gold spot prices and both GDX and GDXJ, implying that if gold goes lower here (it's got room), the miners will weaken even further, so trade these small in the event that support terms out to be meaningless (i.e., you're dead ass wrong as to direction). As far as "the Brazilian" (EWZ) is concerned, the April 20th 43/49 (40 days until expiry) short strangle is paying 1.25 at the mid; it isn't hugely compelling, but it's a sub-$50 underlying after all. If you're going to pull the trigger on that setup, however, I'd do it soon, since we're quickly getting outside the 45-day sweet spot. VIX futures term structure has finally returned to a modest degree of normalcy, with contracts in contango front to back. I'm still waiting for a few UVXY short call verts to pull off here that I put on in the hot and heavy of early Feb, so am going to hand sit until I'm able to quit sweating over those. The forecast, however, is for contango erosion/beta slippage to resume (it already has) in UVXY and VXX, implying that they will continue to pretty much go down from here over time (naturally, in the absence of another pop).
NASDAQ:ADBE
by NaughtyPines
THE WEEK AHEAD: (WHAT THERE IS OF IT) - KRE, GDXJ, EWZ, XOP, VIXWith the shortened holiday week, I'm not expecting much out of the market in terms of volatility, so don't anticipate on putting on anything unless we get some exogenous event pop in the VIX. However, there are a few that might be worth working possible setups in: KRE (regional banks), with an implied volatility rank of 60 and an implied volatility of 22. GDXJ (junior gold miners), uber low rank, but still decent background of 27. EWZ (Brazil), 39/33. XOP (oil and gas), 36/33. I'll post trade ideas in those separately if anything looks potentially fruitful in those. With VIX trundling along here at sub-12 levels, broad market looks subdued from a volatility standpoint, something that's likely to remain in place as the Senate end of tax reform is can kicked to after the Thanksgiving holiday recess ... .
AMEX:KRE
by NaughtyPines
Brazil went down big, let's sell premium (Big lizard)After some negative news about bribery in the government the Brazil's ETF (EWZ) got killed at the open with a 18% down move. With the Implied volatility rank of the stock at the high's of the last 52 weeks(100%) it means that buying options is going to be expensive, in other words we are going to be selling overpriced options. Betting that this is an over reaction and wanting to take as much credit as possible, I decided to sold a big lizard (Straddle with no upside risk) to get a nice premium. The trade: 64 days to expiration Sold the 33 Calls Sold the 33 Puts Buy the 36.5 Calls (no upside risk) Collected 3.95 per contract Target price will be at 25%
AMEX:EWZ
by AlexanderGotay