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THE WEEK AHEAD: X, FB, AMD, AAPL EARNINGS; CL1!, QQQ, VIXPosting a day late here due to a weekend road trip that went a day longer than anticipated ... . EARNINGS: X (67/65) (Thursday, After Market) FB (43/36) (Wednesday, After Market) AMD (34/56) (Tuesday, After Market) AAPL (31/28) (Wednesday, After Market) Although X has the best metrics for a volatility contraction play, the only viable setup for such a small underlying is a short straddle, with the December 20th 12 short straddle paying 2.20/.55 at 25% max. The shorter duration November 15th 12 short straddle is only paying 1.48/.37 at 25% max, making it a less than compelling play unless you're willing to go multiples. A FB November 15th 17 delta 175/207.5 short strangle is paying 3.11/1.56 at 50% max; the AMD November 15th 30/39 short strangle erected at the 18's just under a buck at .99/.49 at 50% max; and the AAPL November 15th 232.5/265 18 delta short strangle, 3.11/1.56 at 50% max. EXCHANGE-TRADED FUNDS: SLV (60/25) GLD (49/13) GDXJ (44/32) GDX (42/28) TLT (42/13) USO (31/35) XOP (27/35) Precious metals have dropped out of warp and no longer have ideal premium selling metrics in durations under 45 days, which could militate in favor of going a smidge farther out in time to get paid. For example, the GDX January 17th (81 days)) 27 short straddle is paying 2.88 versus 27.06 spot (10.6%). The XOP December 20th (53 days) 22 short straddle pays 2.41 versus 21.69 spot (11.1%). BROAD MARKET: Without boring you with the details, <45 days' duration setups aren't paying here, and the shortest duration major in which the at-the-money short straddle is paying >10% is in the QQQ's and out in (ugh) June with my traditional skew-accommodating 1 x 2 short strangle -- the QQQ June 19th 166/2 x 232 short strangle paying 4.99 (2.50 at 50% max; 1.25 at 25% max). FUTURES: As with the exchange-traded funds, premium lies in /GC1! and /CL1!, and where I favor oil over gold due to the shiny stuff's low background implied of 13% versus /CL's 35%. The at-the-money /CL short straddle in the December cycle is paying <10% of where the front month is currently trading, so this may be another case where going out another cycle to January and collecting some additional premium may be to one's advantage. The December 55.5 short straddle is paying 5.38 versus 55.59 (9.7%), while the January 55.5 is paying 6.60 (11.9%). VIX/VIX DERIVATIVES: Pictured here is a VIX "Term Structure" trade in the December monthly paying 1.20 with a break even at 17.20 versus where the corresponding /VX contract is trading at 17.00 even as of the writing of this post. Look to take profit at 50% max (.60/$60).
TVC:VIX
by NaughtyPines
5
THE WEEK AHEAD: AAPL, GILD, X, BIDU; GDXJ, /NGEARNINGS On initial screen for high rank/high implied, here are next week's potential winners for earnings-related volatility contraction plays: AAPL (31/27) (Tuesday after market close), X (52/54) (Thursday after market close), GILD (30/27) (Tuesday after market close), and BIDU (50/41) (Tuesday, but unspecified as to before or after market close). Because background implied on both AAPL and GILD are <50% (not what I like to see to play an earnings-related volatility contraction), those are cut from the list, leaving X and BIDU. Pictured here is a tight short strangle in the September cycle paying 1.11/.56 at 50 max as of Friday close, with break evens at 12.89/18.11, and delta/theta metrics of 2.59/1.74. You can naturally go full on short straddle, but giving the setup some room between the put and call will give you the ability to adjust the strikes intra-trade without going inverted to do so, as you might have to if you went with the September 20th 15 short straddle, which is paying 2.29/.57 at 25 max with break evens at 12.71/17.29, and has delta/theta metrics of -10.62/1.99. The rather unfortunate thing about BIDU is it's an ADR, so the precise announcement date and time is always up in the air until the last moment. That being said, the Sept 20th 95/100/130/135 iron condor is paying 1.46 at the mid (.73 at 50 max), has break evens at 98.54/131.46, and has -.17/1.82 delta/theta metrics. Naturally, I'd ordinarily like to collect one-third the width of the wings in credit, but it's hard to see what that will actually pay with markets showing wide in off hours. BROAD MARKET IWM (11/15) EEM (7/16) QQQ (6/15) SPY (6/12) EFA 0/11 VIX 12.16 Because of low implied in "local expiries" (<45 days 'til expiry or less), I've been going out a little farther in time than usual, taking advantage of implied volatility term structure,* which currently slopes from longer-dated expiries into this current state of affairs, (See RUT Iron Condor Trade, below), with the small added bonus being that longer-dated expiry implied volatility tends to expand less relative to shorter-dated implied volatility in the event of a "local" volatility pop, which is the usual concern with selling premium in low volatility environments. Naturally, I'm not going all crazy with these longer-dated setups, but staying small and keeping powder dry for more favorable volatility metrics in shorter duration expiries. SECTOR EXCHANGE-TRADED FUNDS Top Funds By Rank: GDXJ (78/35), GDX (53/29), SLV (48/20), GLD (39/12), TLT (25/10), SMH (25/24), USO (23/32), XOP (20/30). GDXJ continues to have ideal exchange-traded fund metrics of >70 rank, greater than 35 implied for premium selling ... . IRA TRADES I pulled the trigger on a couple of "not a penny mores" last week in XLP and XLU. Suffice it to say, I did not get stellar credit collection/cost basis reduction for these, since we're far away from the prices at which I want to acquire, but will look to roll out on weakness and/or in increased volatility. It's either stick something out there and get paid to wait or wait for lower and get paid nothing ... . HONORABLE MENTIONS /NG, UNG: Natural gas is around 52-week lows here. Generally, I look for a seasonality play where "peak injection" has historically set up, but it's generally a crap shoot as to where that will occur (that pesky Mother Nature), and it's usually later in the year. I'm watching it, but won't get particularly excited to enter something bullish until we break 2.00. Ideally, I'm looking to get in at around that 2016 low ... . * -- You can see this in RUT, with August implied at 15.3%, September at 16.1%, October at 16.7%, and December at 17.6%.
NYSE:X
by NaughtyPines
THE WEEK AHEAD: INDA, GDXJ, XBI, XOP; X, AMD EARNINGSPictured here is an INDA (66/29) short strangle in the June cycle set up around the 25 delta strikes. Paying 1.00 at the mid, it has break evens of 32.00/39.00, a buying power effect of 5.65, and delta/theta metrics of .68/1.98. Unfortunately, it doesn't have the tightest markets, so expect a little price discovery should you want to get a fill. On the remainder of the exchange-traded fund front, GDXJ (54/30), XBI (25/28), and XOP (25/32) round out the top symbols ordered by rank; XOP (25/32), OIH (27/31), GDXJ (54/30), and EWZ (14/30) are the top symbols ranked by 30-day implied. Because I don't have any gold on at the moment, I'm leaning toward putting something on in GDXJ: the June 21st 28/33 short strangle is paying .97 at the mid with 27.03/33.97 break evens, a 3.90 buying power effect, and delta/theta figures of .13/1.92. And while we're well into earnings, nothing stunning pops to the forefront with ideal volatility contraction metrics, AMD and X appear to be the most amenable to that type of play with >50% 30-day. AMD (48/67) announces on Tuesday after market close, and the down-trodden X (54/56) announces on Thursday after market close. Both are also small enough to either short straddle or go 30 delta short strangle.
CBOE:INDA
by NaughtyPines
OPENING: X MAY 17TH 19 SHORT PUT... for a .49/contract credit. Metrics: Max Profit: $49 Buying Power Effect: ~$202/contract Break Even/Cost Basis If Assigned: $18.51/share Delta: 15.96 Theta: .74 Notes: Here, I'm just looking to deploy some buying power in one of the few underlyings with fairly decent implied volatility (42.4%) at a high probability of profit strike (the 16). I'm fine with taking on shares, but only want to do that at a discount over current price -- the 18.51/share cost basis represents a 20.4% discount over where it's currently trading. Will look to roll out as is at 50% max as long as that remains productive.
NYSE:XLong
by NaughtyPines
1
THE WEEK AHEAD: TWTR, TSLA, X, FCX, NFLX, XOPEARNINGS: The only underlying that interests me for an earnings announcement-related volatility contraction play this coming week is TWTR (62/67). Preliminary Setups: March 15th 28/38 Short Strangle (Pictured): 1.73 credit (.87 at 50% max), break evens at 26.27/39.73, -8.98 delta, 4.78 theta. March 15th 25/28/38/41 Iron Condor: 1.01 credit (.50 at 50% max), break evens at 26.99/39.01, -1.45 delta, 1.70 theta. March 15th 33 Short Straddle: 5.24 credit (1.31 at 25% max), break evens at 27.76/38.24, -10.32 delta, 8.27 theta. March 15th 24/33/33/42 Iron Fly: 4.70 credit (1.17 at 25% max), break evens at 28.30/37.70, -3.87 delta, 3.70 theta. Notes: As you can see by the chart, it has a tendency to move somewhat big around earnings. Although it's small enough to short straddle, I would lean toward the short strangle or iron condor for a play, since it gives you greater adjustment flexibility intratrade than, for example, the iron fly, although you can always invert the short straddle if the move is overly large. NON-EARNINGS SINGLE NAME TSLA (20/58) X (23/44) FCX (20/42) NFLX (21/39) Notes: I'm not hugely keen on nondirectional premium selling in these given their rank metrics. From a price action standpoint, I could see re-upping with a bullish directional assumption play in FCX on weakness (i.e., upward call diagonal, short put, short straddle with a bullish delta metric), but will have to price something out during the New York session to see whether it makes sense. Out of the money short puts in March don't appear to be paying squat, but the April 11's (37 delta) are paying .60 with a 10.40 break even (a 9.6% discount over current price), which would make for a fairly decent "wheel" play ... . EXCHANGE-TRADED FUNDS/MAJORS Petro continues to grove on good background volatility, even though the rank metrics aren't there, with USO at 22/33, OIH at 24/31, and XOP at 14/30 (all at the low end of their 52-week ranges), with my go-to XOP still paying 2.44 at the mid for the March 15th 31 short straddle (.61 at 25% max). It's not great, but it's not yet "marginal." On the majors front, volatility has bled out of the market with QQQ at 21/20, IWM at 20/18, DIA at 20/17, and SPY at 30/16. A VIX at 16.14 doesn't exactly constitute a "come hither" look, so would hand sit on buying power for a richer premium selling environment.
NYSE:TWTR
by NaughtyPines
THE WEEK AHEAD: AMD, AAPL, BABA, FB, TSLA, X, AMZNWe've got a bevvy of earnings announcements on tap: AMD: Tuesday After Close AAPL: Tuesday After Close BABA: Wednesday Before Open FB: Wednesday After Close TSLA: Wednesday After Close X: Wednesday After Close AMZN: Thursday After Close Out of these, AMD (73/74), TSLA (70/73), and X (79/58) have the best metrics for volatility contraction plays. Preliminarily: AMD March 15th 18/26 Short Strangle, 69% Probability of Profit, 1.39 credit, break evens at 16.61/27.39, delta -13.69, theta 3.23, 50% max of .69. AMD Feb 15th 18/25 Short Strangle, 72% Probability of Profit, 1.01 credit, break evens at 16.99/26.01, delta -18.76, theta 5.75, 50% max of .50. AMD Feb 15th 22.5/23 Quasi-Short Straddle, 59% Probability of Profit, 3.27 credit, break evens at 19.23/26.27, delta .07, theta 8.26, 25% max of .82. AMD Feb 15th 16.5/22.5/23/29 Quasi-Iron Fly, 55% Probability of Profit, 2.97 credit, break evens at 19.53/25.97, delta 3.61, theta 5.32, 25% max of .74. Notes: I've shown both the 19 Day Short Strangle next to the 46 day'er in the March cycle just to show that you don't get a huge bang for your buck by going farther out in time when shooting for a 70% or so Probability of Profit with your short strangles. .38/$38 is nothing to frown at, but I like to do these as "quickee dirtees," taking advantage of any post-announcement volatility crush and then getting out and moving on, so would lean toward the shorter duration February cycle trade. I've also shown an almost short straddle and a quasi-iron fly for those who like to start out more delta neutral. TSLA Feb 15th 240/250/340/350 Iron Condor, 63% Probability of Profit, 3.25 credit, break evens at 246.75/343.25, delta -1.18, theta 10.86, 50% max of 1.62. Notes: I would shoot for a fill that is at least one-third the width of the wings or 3.33. Markets can be pesky wide in TSLA, and you don't want to start out underwater by virtue of the spread, so being patient, doing a little price discovery on the front end of things, and attempting to get filled above the mid is to your advantage ... . If the market won't come to you, pass on the play. X Feb 15th 21.5 Short Straddle, 56% Probability of Profit, 2.44 credit, break evens at 19.06/23.94, delta 4.02, theta 5.78, 25% max of .61. X Feb 15th 17.5/21.5/21.5/25.5 Iron Fly, 50% Probability of Profit, 2.10 credit, break evens at 19.40/23.60, delta -7.99, theta, 2.97, 25% max of .52. Notes: I looked at a short strangle with a 70% Probability of Profit metric, by the credit received didn't seem very compelling (<1.00). On the exchange-traded fund front, not much is hopping with the top five coming in under 50 in rank, under 35 in 30-day implied or both: IWM (59/21), DIA (52/18), XLV (48/18), SPY (47/17), and XHB (45/23), although implied remains fairly high in (where else?) oil, with OVX at 35.21, USO at 68/36, OIH at 44/33, and XOP at 36/32,
NASDAQ:AMD
by NaughtyPines