THE WEEK AHEAD: VIX, SPY, IWM, QQQ, DKS, FL, TEVAUnless you've been living under a rock somewhere, you'll know that last week we experienced a pop in VIX. Ordinarily, this would get me somewhat excited to put on broad market index exchange-traded fund stuff in SPY, IWM, and QQQ. However, running my standard defined risk setups in those underlyings has led to minor disappointment -- while they are paying more than last week due to the increase in implied volatility, they still aren't paying enough, in my opinion, to bother with putting on; we simply need higher back month implied volatility for those to pay if I'm going to stick to my guns and only put these on when they're paying at least one-third the width of the widest wing. Even if I go out to the October expiry, a 20-delta three wide is only paying .91 in the QQQ's, .81 in IWM, and .81 in SPY (at this point in time, going with the September expiry is too close in time; October's too far out; and the September quarterly needs to populate a touch more to be workable, so that set of circumstance militates in favor of just waiting anyhow).
As far as earnings are concerned, there are couple of underlyings with >70 implied volatility rank and >50% implied volatility that might be worth doing earnings plays on: DKS, which announces on Tuesday before market open and FL, which is tentatively scheduled for some time on Friday.
With non-earnings, only TEVA has the metrics I'm looking for. Because of the size of the underlying, I'd probably go short straddle or fly; the Sept 15th 17.5 short straddle is paying 2.21 with break evens slightly wide of the expected move, and the Sept 22nd 13.5/17.5/17.5/21.5 iron fly (you'll want to go with a weekly to have access to half strikes), is paying 2.08 with a buying power of effect of 1.92, theta of 1.30, and 2.27 long delta. For traders who are not adverse to acquiring shares of this beaten-down generic drug maker, the September 20 delta short put at the 15 strike is paying .37 at the mid with a break even of 14.63; the Sept 29th 15 is paying .47 at the mid with a break even of 14.53. A more aggressive play would be the September 29th 30 delta at 15.5, paying .61 with a break even of 14.89.
Because of the VIX pop, a "Term Structure" play may be in the offing. Although the first VIX future trading at greater than 16 is in the January expiry (156 days out), the November 16/19 short call vertical (93 days out) is paying .70 at the mid, which is what I look for in these plays (.65-.75 for a three wide). That being said, September, October, November, and December expiries maintain a flat aspect relative to spot here, trading at 15.27, 15.52, 15.73, and 15.72, so it may be worthwhile to wait and see if those front months "smooth out" such that each successive back month is higher than the previous one. The current structure is basically trading with "flat volatility" in mind between 15.25 and 15.75 from September to year's end .... .
TEVA
TEVA, BAT Pattern before earningsWhen it comes to earnings, the direction is like Schroedinger's cat for me.
It's like pure gambling and I would more like to gamble in Vegas or Macau rather than the stock market,so I never try to predict the direction before earnings.
Like my last article a few moment earlier today, I like to react with the price action of the market, not figure out the good/bad of the earning report.
While, in addition to wait for a inside day after earnings, find a important spot before earnings and see how it reacts to the earnings is another trading idea.
TEVA has a BAT Pattern with a long entry near 28; (and it usually reacts HUGE on its earning day)
So my trading idea remains the same: waiting for a reversal sign around the 28 and try to long .
And a 27.49 out is good enough .
Again, I'm not saying that I expect TEVA will reach 28 ; I'm saying that I'm looking for a long opportunity near 28 if there is a reversal sign there.
TEVA: Potential monthly bottom spottedI'm entering longs here, averaging in gradually. I anticipate a monthly scale rally, back to 54.59 possibly, coming off a double bottom at key support, with an extremely low valuation, and positive news regarding breakthroughs in delaying drug metabolism.
Good luck!
Ivan Labrie
TEVA H&S formation - price preparing to turnThe $TEVA chart just keeps getting better and better....
Quarterly chart is rejecting last 2 major lows with a pinbar with stoch RSI overbought
Ideally we bounce here to retest the fibs and form a right shoulder before complete capitulation.
If the H&S formation is confirmed $TEVA should head down to levels we haven't seen since the 90's ($10 and below)
NEXT WEEK: IF LAST WEEK WAS SLIM, THIS WEEK IS "SLIMMER" PICKINSThere are a few names popping up on my radar for earnings plays, but when I "look behind the curtain," they aren't that attractive ... .
TEVA, for example, announces on Monday, but it's an ADR, so it could be before market open or after market close or, indeed, not at all, but on some other day. It's tough to put on a volatility contraction play when you don't know exactly when the contraction is going to occur. Moreover, it's biopharm; when it moves, it tends to move big and bigger than you'd want.
BKD has the right metrics -- >70% implied volatility rank, >50% IV, but it's probably too cheap to make a play worthwhile and, moreover, only has monthlies, which can be a pain to work if you need to roll. TMX suffers from the same affliction ... .
TMUS, however, may be worth a play, with implied volatility at the high end of its six-month range and a background implied volatility of 43%. It announces earnings on 2/14 (Tuesday) before market open, so you'll want to put on a play in the final hours of the NY session on Monday if you want in. Preliminarily, the Feb 24th 20-delta short strangle (which currently would be at 58.5/67) would bring in 1.09 credit at the door.
As far as exchange-traded fund plays are concerned, there isn't a single underlying with >70% implied volatility rank (over the previous six months) and >35% IV at the moment, and the broader market instruments (SPY, IWM, DIA, QQQ) (I'm basically playing like a broken record here), implied volatility is too low to put on premium selling plays (which is why I've been looking at low vol strats like diagonals to do something there; see Post Below).
For similar reasons, I can't do much with the VIX/VIX derivatives. My experience has been that playing these long is generally unproductive, and I'd have to go out to June to sell a 50-delta short call vert with the short call strike at 16 or above to see the kind of credit I like to get out of these (e.g., the VIX June 17/20 is currently paying .75 at the mid).
Buy $Teva HereShares of Teva Pharmaceutical Industries Ltd (NYSE:TEVA) plummeted after-hours Monday after four patents on Copaxone were invalidated. The stock fell as much as 10% to nearly $31. Teva Pharmaceuticals has been under pressure for months from government threats of drug price curbs. The stock is trading at 10 year lows. I am alerting investors that there is major support on Teva Pharmaceuticals at $30.00. This is where I expect it to bounce based on historic support stretching back to 2006. I expect a long term bottom in the $30 range and will be accumulating a large position.
See my verified track record here: verifiedinvesting.com
Possible H&S within TEVA?We appear to be bottoming at the neckline of a potential H&S. This thing is a monster and can be easily seen on the 6 month and yearly time frames.
You could buy the relief rally that takes us back up or wait for extra confirmation and sell the relief rally with a formation of that shoulder.
SOLD TEVA SEPT 16TH 47.5 PUTSelling the 47.5 put naked here below support as a potential precursor to a covered call, which I got filled for a .73 ($73)/contract credit.
Basically, my thought process here is that I might want to covered call TEVA, but don't want to buy shares here at 53 (lower is better). I'll naturally watch price and roll the short put down and out for a credit should it appear that it's going to totally implode such that I could get the shares even cheaper. Otherwise, I'll just keep the credit collected for the short put here and/or cover in profit it if something better comes along.
TRADING IDEA: TEVA SEPT 16TH 47.5/60 SHORT STRANGLEPost-earnings, TEVA's implied volatility rank/implied volatility are still quite high, and the 47.5/60 short strangle goes for 1.58 ($158)/contract at the mid.
Look to take it off at 50% max profit ... .
Defined Risk Alternative: Sept 16th 42.5/47.5/60/65 iron condor, currently going for 1.13 ($113)/contract at the mid.
NEXT WEEK'S EARNINGS TO WATCH: LC, VRX, M, JWN, NVDAWith broad market volatility ebbing, the place to sell premium is with earnings plays for now.
Next week, look to put on options plays shortly before the earnings announcement to capitalize on post-announcement volatility contraction. This little fellahs currently look best for plays:
LC: 5/9 (Monday) after market close. Due to the price of the underlying, short straddle it, if anything. Neither a short strangle or iron condor will be productive unless you go with a larger number of contracts.
VRX: 5/11 (Wednesday). I don't show it as before or after market right now.
M: 5/11 (Wednesday) before market open.
JWN: 5/12 (Thursday) after market close.
NVDA: 5/12 (Thursday) after market close.
I also looked at a couple of others, but decided that they were problematic for one reason or another:
TEVA ... is scheduled to announce on Monday, is an ADR. I'm not a huge fan of ADR's, since they're basically free to tentatively schedule an earnings announcement and then move it back a week or two. For a volatility contraction play, which I want to put on immediately before the announcement, this does me no good ... . Moreover, the spreads are wide on the options; if they're wide going in, they're going to be wide trying to get out ... .
SCTY ... will announce on 5/9 after close. I would love to play this little fellow, as it's plenty full of premium given its relatively modest price. That being said, it's another "spread wide" situation ... .
AGN ... announces on 5/10 before market open. You would think an underlying that trades 4.9 million shares on a daily basis would have fairly decent spreads on their options. Nunh-unh ... .
RAX ... 5/9 after market close is the announcement. You guessed it -- illiquid options.
I'll post actual setups as we get closer to earnings ... .