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THE WEEK AHEAD: M, CLDR, CRWD EARNINGS; GDXJ/GDX, SLV, QQQTHE WEEK AHEAD: EARNINGS ANNOUNCEMENT VOLATILITY CONTRACTION PLAYS: M (41/103/September 18.7%): Announces Wednesday before market open. Potential Plays: September 18th 13 short straddle, paying 1.30 as of Friday close, .33 at 25% max. September 18th 5/7/7/9 iron fly, paying 1.07 as of Friday close, .27 at 25% max. Look to take profit at 25% max. CLDR (68/116/September 20.1%): Announces Wednesday after market close. Potential Plays: September 18th 13 short straddle, paying 2.60 as of Friday close, .65 at 25% max. September 18th 9/13/13/17 iron fly, paying 2.13 as of Friday close, .53 at 25% max. Look to take profit at 25% max. CRWD (32/74/September 15.0%): Announces Wednesday after market close. Potential Plays: September 18th 101/145 short strangle, paying 4.03 as of Friday close, 2.01 at 50% max. September 18th 100/105/140/145. Markets are showing wide in the off hours, but look to put on a setup that pays at least one-third the width of the wings in credit. Comments: Not a ton is shaking next week for options liquid underlyings, but here are what appear to me to be the best candidates for volatility contraction plays. Naturally, I'm just preliminarily pricing these out to see whether they're potentially worthwhile, and actual strikes are likely to change somewhat running into earnings as price moves. EXCHANGE-TRADED FUNDS SCREENED FOR >35% 30-DAY IMPLIED/OCTOBER AT-THE-MONEY SHORT STRADDLE PAYING >10% OF STOCK PRICE: SLV (45/56/15.2%) XLE (24/39/11.2%) GDX (22/47/13.3%) GDXJ (21/58/15.7%) EWZ (17/44/12.3%) XOP (13/50/14.1%) GDXJ is paying the most as a function of stock price (15.7%), followed by SLV (15.2%), XOP (14.1%), and GDX (13.3%). WHAT THE SHORT STRANGLES NEAREST 16 DELTA ARE PAYING: The GDXJ October 16th 15/75 short strangle: 2.15, 3.6% as a function of stock price, The SLV October 16th 22/32 short strangle: .97, 3.6% as a function of stock price. The XOP October 16th 45/63 short strangle: 1.84, 3.5% as a function of stock price. The GDX October 16th 38/47 short strangle: .84, 2.0% as a function of stock price. Comments: I've already got a miners play on, so am likely to avoid getting into another closely correlated underlying here. BROAD MARKET: QQQ (29/32/8.8%) IWM (22/28/7.6%) EFA (17/20/5.6%) SPY (12/22/5.3%) WHAT THE SHORT STRANGLES NEAREST 16 DELTA ARE PAYING: The QQQ October 16th 257/320 short strangle is paying 6.51, 2.2% as a function of stock price. The IWM October 16th 140/170 short strangle, 2.93, 1.9%. The EFA October 16th 60/69 short strangle, .93, 1.4%. The SPY October 16th 317/391 short strangle, 4.95, 1.4%. Comments: In the IRA, I've been mechanically selling 45 days 'til expiry puts at the two times expected move strike (basically, the 16 delta) and will pretty much continue to do so until 30-day drops below 20%. There's always hesitancy to continue to do this at successive all-time-highs, and, yes, it is likely I will be assigned shares at some point in a >2 times expected move sell-off, after which I'll proceed to cover. That being said, I've got an inordinate amount of undeployed buying power after all the acquisitional short put ladders I put on in the sell-off have come off; I'd rather take some risk here to earn "something," all while keeping a reasonable amount of dry powder free to take advantage if we get another one of those bodice rippers we had in mid-March. This week, I'll follow the implied volatility, and as of Friday close, that was in the QQQ's. DIVIDEND EARNERS: XLU (21/23/7.1%) EWA (20/24/7.0%) TLT (18/19/4.8%) EFA (17/20/5.6%) EWZ (17/44/12.3%) IYR (17/24/6.5%) HYG (17/14/2.8%) SPY (16/22/5.3%) EMB (11/11/2.7%) The Brazilian exchange-traded fund leads the pack for the umpteenth week in a row, with XLU and EWA in distant second and third places. I'm fine with continuing to hit EWZ via acquisitional short put over and over again if that's where the implied volatility leads, but, yes, it's kind of getting old. For what it's worth: The 2 times expected move EWZ October 16th 28 short put is paying .36 per contract as of Friday close (1.2% as a function of stock price). Key: The first number in parentheses is the implied volatility rank or percentile (i.e., where implied volatility is relative to where it's been over the past 52 weeks); the second, 30-day implied volatility; and the third, the percentage of stock price that the specified monthly expiry at-the-money short straddle is paying.
C
by NaughtyPines
THE WEEK AHEAD: CSCO, SLV, IWM, VIX/VIX DERIVATIVESEARNINGS: CSCO (46/40) announces earnings on Wednesday after market close. The metrics aren't ideal here with the at-the-money 42.5 short straddle in June paying 4.39, just a smidge north of 10% of the value of the underlying (10.2% to be exact) and the month to month implied differential almost nil (June's at 40.5, July at 40.3%). Nevertheless, a bet that CSCO stays within its expected move -- the June 19th 40/46 short strangle is paying 2.00 at the mid price here with break evens at 37.99/48.01. EXCHANGE-TRADED FUNDS ORDERED BY RANK WITH >35% IMPLIED: SLV (62/44) EWZ (51/63) GDXJ (51/63) GDX (49/51) EWW (45/40) XLE (41/48) USO (34/110) SMH (32/38) XOP (30/61) BROAD MARKET FUNDS ORDERED BY RANK: IWM (52/42) EEM (39/31) EFA (35/24) QQQ (30/29) SPY (26/28) IRA DIVVY-PAYERS ORDERED BY RANK: EWZ (51/63), 5.15% Yield EWA (51/42), 5.31% Yield EWW (45/40), 4.26% Yield IYR (43/34), 3.77% Yield XLU (41/31), 3.48% Yield EWU (37/28), 5.56% Yield EFA (35/24), 3.79% Yield HYG (28/18), 5.49% Yield TLT (27/21), 1.79% Yield SPY (26/28), 1.98% Yield EMB (26/20), 4.92% Yield Notes: Kind of a new section here to track background IV for potential acquisitional plays for the IRA in dividend yielding exchange-traded funds. Currently, running short put ladders in IYR, HYG, XLU, and EWA, but now that I've gotten organized here, may consider similar setups in EWZ (5.15% yield), EWW (5.31%), and EWU (5.56%). VIX/VIX DERIVATIVES: VIX finished the week at 27.98 with the /VX term structure in front months contango. Back months are still "wonky" and present a (for lack of a better word) sinuous path from here to December. TRADE OF THE WEEK: Pictured here is a Plain Jane delta neutral IWM short strangle in the June cycle (40 days) paying 3.37 at the mid price. The highest implied, broad market exchange-traded fund on the board at the moment.
AMEX:IWM
by NaughtyPines
3
THE WEEK AHEAD: SNAP, NFLX, IBM EARNINGS; /ZC, /CLEARNINGS: IBM (63/54) announces Monday after market close. SNAP (92/102) announces Tuesday after market close. NFLX (66/70) announces Tuesday after market close. EXCHANGE-TRADED FUNDS ORDERED BY IMPLIED VOLATILITY RANK/PERCENTILE SCREENED FOR RANK >50/IMPLIED >35%: XLU (77/47) GDXJ (77/84) GDX (67/65) SLV (66/45) TQQQ (63/111) USO (62/112) XLE (59/70) EWW (58/54) EWZ (53/69) XOP (59/91) BROAD MARKET EXCHANGE-TRADED FUNDS ORDERED BY IMPLIED VOLATILITY RANK/PERCENTILE: IWM (72/54) QQQ (47/38) SPY (45/28) EFA (44/31) EEM (41/36) FUTURES ORDERED BY IMPLIED VOLATILITY RANK/PERCENTILE: /ES (44/40) /NQ (47/39) /YM (51/13) /RTY 72/53 /CL (62/130) /NG (94/71) /GC (67/27) /SI (66/43) /ZC (57/28) /ZS (33/17) /ZW (27/31) Notes: Pictured here is a /ZC August 21st 310/330 long call vertical, currently trading at 11.25 with a break even at 321.25 versus 321 spot. Ideally, you'd want to put this on with at least make one/risk one metrics, which would occur if the spread priced out at 10.00 even or below. /ZC is tantalizingly close to those August 2016 lows at 310 '06 ... . Another future worth mentioning here: /CL. As I write this post, the May contract is currently trading at multi-year lows at 15.09, with the June contract trading at 23.66. May drops off this week with the question being how low the June contract will go. I continue to look to sell puts on weakness in the active contract at or below $20. VIX/VIX DERIVATIVES: VIX finished the week at 38.15 with the /VX term structure in backwardation.
CBOT:ZC1!
by NaughtyPines
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.
AMEX:EWZ
by NaughtyPines
5
CLOSING (IRA): SPY MARCH 20TH 319, 320, 322 SHORT CALLS... for a .31/contract debit. Notes: Hard to believe that these were well in the money a few days ago, but they've largely done their job. Over time, I collected 11.70/contract in credits, and am closing out here for .31, so made 11.39 ($1139)/contract, all while protecting my SPY position from most of the bruising it got over the last week. (See Overwriting Post, Below). The downside (if it really is one) is that the entire position has returned to net delta long, although I've still got a QQQ long put diagonal hanging out there (See Post, Below) providing me with some short delta that was erected as a secondary hedge against. The 370's have gone no bid, so will just leave those on to expire ... . Generally, I like to erect these on strength, but may re-up if I can sell calls clear of those all-time-highs and get paid to do so.
AMEX:SPYLong
by NaughtyPines
THE WEEK AHEAD: FDX, MU, NKE EARNINGS; CHWY, /NG, VIXEARNINGS: FDX (57/37): Tuesday, After Market Close. MU (23/46): Wednesday, After Market Close. NKE (24/25): Thursday, After Market Close. Pictured here is an MU January 17th 46/57.5 short strangle paying 1.53 (.76 at 50% max) with 1 standard deviation break evens and a delta/theta metrics of .32/5.34. Alternatively: a defined risk play collecting one-third the width of the wings: the January 17th 42/47/55/60, paying 1.69. Neither FDX nor NKE are paying as well premium-wise relative to the cost of their shares, but the FDX 150/180 18 delta put/21 delta call short strangle in the January cycle is paying 3.88; the NKE 90/105 14 delta put/18 delta call short strangle, 1.15. Alternative defined risk plays: the FDX January 17th 145/150/180/185 iron condor, 1.50 credit (not quite one-third the width of the wings, but you have to deal with some lack of granularity in the strikes with five-wides); the NKE January 17th 85/95/100/110 "forced goofy" iron condor, 3.30 credit (one-third the width, but a "forced goofy,"* again due to lack of strike granularity). CHWY (--/50) gets an honorable mention due to lockup expiration on Wednesday. With it finishing on Friday above the $22 initial public offering price and approximately 87% of float subject to lockup, it could make for an interesting premium selling play and/or directional shot, particularly since 30-day remains high after earnings. EXCHANGE-TRADED FUNDS: TLT (31/12) EEM (28/16) FXI (19/18) SMH (15/25) USO (14/29) Expiries in Which At-the-Money Short Straddle Pays Greater than 10% of the Value of the Underlying: TLT: January '21 EEM: June FXI: June SMH: May USO: February BROAD MARKET: SPY (7/12) IWM (0/15) QQQ (0/15) Expiries in which the at-the-money short straddle pays greater than 10% of the underlying are all out in September. Ugh. No bueno. FUTURES: /NG (58/57) /ZS (36/16) /ZC (25/21) /6C (23/5) /6B (22/11) With /NG 30-day at 57 and trading at a seasonal low, this may be a second opportunity to take a dip at a bullish assumption shot, assuming peak seasonality in January or February. VIX/VIX DERIVATIVES: VIX closed Friday at 12.63, with the /VX futures contracts trading at 15.22 in January, 16.70 in February, 17.07 in March, and 17.60 in April. Consequently, term structure trades remain viable for the February, March, and April, generally using spreads with a break even at or near where the futures contract is currently trading (e.g., VIX February 19th 16/18 short call vertical, .65, break even of 16.65 versus February /VX at 16.70). * -- A "forced goofy." Strike selection is "forced" to get one-third of the width in credit, "goofy" because forcing the short option strikes leads to bigger risk than you might ordinarily want to devote to the play. There is nothing particularly wrong with a "forced goofy," as long as you understand that it's a risk 6.70/reward 3.30 play versus your usual play which might be risk 3.33/reward 1.67 play, for example.
NASDAQ:MU
by NaughtyPines
1
THE WEEK AHEAD: HD, LOW, TGT, GPS, M EARNINGS; /NG, VIX, VXXEARNINGS: HD (24/21) (Tuesday Before Market) LOW (68/35) (Wednesday Before Market) TGT (66/37) (Wednesday Before Market) GPS (60/53) (Thursday After Market) M (97/67) (Thursday Before Market) Pictured here is an M short straddle at the 17 strike in the December cycle, paying 2.73 with 14/72/19.73 break evens, and delta/theta metrics of -4.49/3.77. Look to put on a play on Wednesday before the end of the New York session. In second place for ideal volatility contraction metrics is GPS (60/53). As with M, I would short straddle here, with the December 20th 18 paying 2.22 with 15/78/20.22 break evens, and delta/theta metrics of 1.29/3.06. EXCHANGE-TRADED FUNDS: TLT (42/12) EEM (40/17) SLV (29/20) EWZ (26/27) FXI (26/19) ... with the first expiry in which the at-the-money short straddle pays more than 10% of the value of the underlying: TLT, January '21; EEM, June; SLV, July; EWZ, March; and FXI, May. Both the rank/implied metrics, as well as the short straddle value metric indicate that it's probably a good time to hand sit on selling shorter duration premium here. BROAD MARKET: With VIX finishing the week at 12.05, volatility is at or near 52 week lows here in all the majors: SPY's in the 6th percentile; IWM in the 4th; and QQQ at 0. The first expiry in which the at-the money short straddle pays greater than 10% of the value of the underlying: SPY, Sept; IWM, June; and QQQ, June. Both the rank/implied metrics, as well as the short straddle value metric indicate that it's probably a good time to hand sit on selling shorter duration premium here. FUTURES: /6B (63/11) /NG (40/59) /ZS (30/20) /SI (29/19) /CL (24/33) As I may have mentioned last week, it's no surprise that /NG volatility is frisking up here. Generally, I play natty for seasonality, so look to get in with something bullish assumption at seasonal lows/peak injection, bail out of the long delta position in January or February depending on how Mother Nature feels, and then look to ride the elevator down in the opposite direction with a short delta position. I'm not keen on selling nondirectional premium (e.g., iron condors), particularly given what natty did last winter, so am sticking with my traditional, no-nonsense seasonality play. Another item of note: GVX (gold volatility) has dropped substantially here, finishing the week at 11.22, in the 23rd percentile for the year ... . VIX/VIX DERIVATIVES: As previously mentioned, VIX closed the week at near 2019 lows (12.05), with the December, January, and February /VX contracts trading at 15.09, 16.60, and 17.50, respectively. Consequently, VIX term structure trades are still viable in the January and February expiries, but would probably beg off a December setup in the absence of a pop that runs that contract up to >16; the 16 strike is generally the lowest I will go with the short option leg of a VIX term structure trade. As far as derivatives are concerned, this definitely isn't the place to be adding shorts. While it may be that VIX hangs out at these levels for a lengthy period of time, shorts are most productive on VIX pops -- not at VIX lows, even if contango and beta slippage are really working in shorts' favor here. As we all know, both the current steep contango and low VIX levels can evaporate in a heartbeat. If anything, this may be one of the rare occasions to consider a small bullish assumption trade (e.g., a VXX December 20th 15/17/17/19 "Super Bull,"* paying a .20 credit, with max profit/loss metrics of 2.20/1.80 and a break even of 16.80 versus the 17.40 where VXX is currently trading). * -- A 15/17 short put vertical combined with a 17/19 long call vertical.
NYSE:M
by NaughtyPines
3
THE WEEK AHEAD: CRON, TLRY, CGC EARNINGS; EWZ; VIXHIGH RANK/IMPLIED EARNINGS: CRON (32/82) (Tuesday Before Open) TLRY (50/97) (Tuesday After Close) CSCO (44/27) (Tuesday After Close) WMT (48/23) (Thursday Before Open) NVDA (24/43) (Thursday After Close) AMAT (17/34) (Thursday After Close) CGC (95/87) (Thursday Before Open) JC (30/43) (Friday Before Open) Notes: Looks like it's the "Week of Weed" with CRON, TLRY, CGC announcing and all in states of high implied/high rank ... . If you're hesitant to go into single name here, MJ (47/51) has decent rank/implied metrics, although it's less liquid than I would like. EXCHANGE-TRADED FUNDS: TLT (56/12) EWZ (47/28) SLV (44/22) GDXJ (37/31) GLD (34/11) EEM (33/16) First Expiries In Which At-the-Money Short Straddle Pays >10% of Stock Price: TLT: January of '21 EWZ: March: 5.64 verus 43.02 (13.11%) SLV: April: 1.72 versus 15.70 (11.0%) GDXJ: January: 3.99 versus 36.33 (11.0%) GLD: January of '21 EEM: June: 4.97 versus 43.68 (11.4%) Notes: Pictured here is an EWZ delta-neutral short strangle camped out at the 20 delta in the first expiry in which the at-the-money short straddle pays greater than 10% of the value of the underlying. Paying 1.61, it has break evens of 35.39/50.61 with delta/theta metrics of -.36/1.49; .40 at 25% maximum; .80 at 50%. BROAD MARKET: Broad market premium selling simply isn't paying here in short duration (an understatement). FUTURES: /6B (72/9) /NG (74/60) /SI (44/21) /GC (34/12) /ZS (32/20) Notes: Natty is frisking up, which should be no surprise. Having put on a bullish assumption seasonality play in UNG way back in August at lows, I'm just waiting for things to top out in January or February before doing something in the other direction. VIX/VIX DERIVATIVES: Term structure trades* in VIX remain viable for the December, January, and February expiries with the correspondent futures contracts trading at 16.05, 17.33, and 18.07 respectively. On the other end of the stick, continue to consider a VXX Super Bull or similar setup to potentially catch a modest volatility expansion running into the end of the year without sticking your entire pickle in the grinder, particularly if VIX continues to trundle along at 2019 lows: the December 20th 16P/-18P/18C/-20C pays a small credit (.17), has a 17.83 break even versus spot of 18.64, and max profit/max loss metrics of 2.17/1.87, with max being realized on a finish above 20, which does not exactly require a massive pop from here. * -- Generally short call verticals with break even near where the correspondent /VX futures contract is trading (e.g., the December 20th 15/18, paying .90, with a 15.90 break even versus the December /VX contract trading at 16.05; the January 22nd 16/19, 1.00, with a 17.00 break even versus 17.33; February 19th 17/20, with an 18.00 break even versus 18.07).
AMEX:EWZ
by NaughtyPines