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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: WFC, C, JPM, BAC EARNINGS; XLF, IWM, XLU; /CLEARNINGS: And ... we're back into earnings season, which ordinarily kicks off with a bunch of financials. Generally, I don't play these for volatility contraction, since they don't get all that frisky generally, but this environment is a tad different from quarters past, with the 30-day in WFC (45/76), C (44/91), JPM (41/63), and BAC (40/70) all greater than 50% and with the sector exchange-traded fund up there as well (XLF (47/58)). Rather than play one of the single names, I've pondered what could be done in the sector exchange-traded fund, XLF, instead. Pictured here is a long-dated XLF call diagonal with the back month at the 90 delta in June of next year, the 30 delta-ish front month in June of this one. Ordinarily, I don't go that far out in time with the back month, but June '21 happens to one of the expiries with the lowest implied, so it will be one in which the 90 delta has a lower extrinsic value baked into it compared to expiries of shorter duration. Costing 8.36 at the mid price, it has a break even of 23.36 versus 23.38 spot, a debit paid/spread width ratio of .76, and delta/theta metrics of 58.64/.77, so it's neutral to bullish assumption with plenty of time to reduce cost basis via short call roll. You'd be paying 8.36 for an 11-wide, so have a max profit potential equal to the width of the spread (11.00) and what you paid (8.36) or 2.64 ($264) -- about 31.6% return on capital, assuming max profit. Naturally, it would have been more awesome were one to have gotten in at the 3/22 17.50 lows. EXCHANGE-TRADED FUNDS WITH 30-DAY IMPLIED GREATER THAN 50%: XLU (52/52) XLE (47/75) SMH (43/57) GDXJ (41/81) EWZ (40/74) EWW (39/58) SLV (34/50) XOP (33/100) USO (32/128) GDX (28/62) BROAD MARKET: IWM (53/54) TQQQ (47/122) QQQ (40/42) SPY (40/41) EEM (35/40) EFA (31/35) FUTURES: /NG (78/73) /ZW (69/36) /GC (41/31) /ES (40/42) /SI (34/48) /CL (32/1555) /ZC (29/32) /ZS (21/20) I reference /CL in the header, primarily due to the background implied, but also due to price action. Some of the volatility may piss out at futures open given a supposed agreement by OPEC+ to cut production by 10 million bpd or so, with the last holdout -- Mexico -- coming on board. If we revist $20/bbl., I will consider adding /CL out-of-the-money short puts. VIX/VIX DERIVATIVES: What's new ... . We're in a high volatility environment and in backwardation with VIX finishing the week at 41.67. MUSINGS: In The IRA: Things aren't looking all that great for me from an acquisition standpoint with the short put ladders I stuck out there for things on my shopping list -- at least for the April "rung" of them. That's okay, since if they expire worthless, I'll keep the premium associated with that rung. Naturally, if I don't pick up jack via assignment, I'll look at re-upping with a rung to replace the expiring worthless if that happens or just let the remaining rungs ride and look for opportunities going forward. A lot can happen in a week ... .
AMEX:XLF
by NaughtyPines
THE WEEK AHEAD: USO/XLE/XOP, EWW, XLUEXCHANGE-TRADED FUNDS ORDERED BY IMPLIED VOLATILITY RANK: USO 67/167 EWW 57/73 XLE 57/87 XLU 57/53 GLD 51/32 EWZ 50/85 XOP 49/105 SMH 47/58 GDXJ 44/86 XLF 41/53 FXI 32/39 GDX 31/66 TLT 30/25 BROAD MARKET EXCHANGE-TRADED FUNDS ORDERED BY IMPLIED VOLATILITY RANK: IWM 59/60 EEM 46/49 SPY 47/58 QQQ 46/44 EFA 39/45 FUTURES ORDERED BY IMPLIED VOLATILITY RANK: /NG 72/67 /CL 67/157 /GC 51/31 /ZS 51/19 /ES 47/56 /SI 41/51 /ZW 40/32 /ZC 29/27 VIX/VIX DERIVATIVES VIX finished the week at 46.80 with the entire /VX term structure in backwardation. MUSINGS: Shown here is an EWW short put in the May cycle paying 1.00. Camped out at the 23 delta strike, it has a break even of 22.00 and has a 4.54% return on capital in a cash secured environment. Alternatively, the May 15th 22/29 short strangle is paying 1.54 at the mid. * * * Long /CL at $20/barrel via out-the-money short puts or short put verticals may turn out to be the "trade of the year" after (in my case) being taken to the wood shed playing it non-directionally/rangebound between 52 and 63. Only time will tell; it's come up substantially off its lows already with it remaining to be seen whether OPEC+ can get its shit together and quit with the self-harm. * * * In the IRA, it looks to be touch and go for acquiring stuff on my shopping list. (See Posts, below). I've stuck my lines in the water; the best I can hope for is to get some bites at April opex. If I don't get assigned, I'll re-up with a rung to replace any expiring worthless if the market stays down here. Simultaneously, I'm looking to exit my TLT position, which has a cost basis of below $110/share, thinking that the capital can be better deployed elsewhere, but don't want to do that if I don't pick any other dividend-generating underlyings to replace it. Looked at from that perspective, my "personal" yield on the TLT position in light of my particular cost basis is 2.98/$110 or about 2.71%, which isn't horrible.
AMEX:EWW
by NaughtyPines
2
THE WEEK AHEAD: CCL, XLU, XLE, SMH, TQQQ, /CLEARNINGS: CCL (67/284) (What?! 284% 30-day) announces earnings this coming week. Unless you've been under a rock the past several weeks, you'll know how hard it's been hammered with COVID-19 and can easily anticipate further hammering, both with earnings, forward guidance, and the potential reduction of its 2.00 annual dividend (12.86% yield as of Friday close). They have yet to announce a dividend cut, but cruise lines are also not part of the $2 trillion bailout package, so there is probably more pain ahead in the short to medium term, and a potential suspension or reduction the dividend payment will only add fuel to the fire. For those looking to bet on an eventual recovery, however, the May 17th 10 short put is paying 2.30 at the mid price as of Friday close with a resulting cost basis of 7.70 if assigned, a 53% discount over where the stock is currently trading. EXCHANGE-TRADED FUNDS ORDERED BY RANK XLU (67/57) XLE (67/99) SMH (67/72) USO (67/161) EWW (59/86) EWZ (59/95) GDXJ (59/1O2) GLD (58/35) XOP (49/115) SLV (48/63) FXI (44/49) GDX (41/78) TLT (34/28) BROAD MARKET EXCHANGE-TRADED FUNDS ORDERED BY RANK TQQQ (80/175) DIA (78/76) IWM (76/72) SPY (71/65) QQQ (71/55) EEM (73/61) EFA (53/50) FUTURES ORDERED BY RANK /NQ (74/72) /ES (71/66) /CL (58/34) /GC (58/34) /SI (48/60) /ZS (45/23) /ZW (36/36) /ZC (22/34) VIX/VIX DERIVATIVES VIX finished the week at 65.54 with the /VX futures term structure in backwardation. MUSINGS On Margin: Truth be told, I'm not doing a ton here besides either (a) waiting for assignment; or (b) making adjustments where doing so doesn't subject me to "call side whip" such that my put side headaches become call-side ones. And although the high volatility environment is great for premium selling, it does have one minor, pesky side effect that I may have mentioned before -- options liquidity hasn't been all that great, even in what are usually the most liquid underlyings. Additionally, I generally like to be managing the smallest number of crap piles at once as possible, and this closely correlated sell-off has resulted in a few that I'd like to clean up before potentially inheriting more. To a certain extent, one has to be fine with that; it is, after all, the challenging trades that make your life interesting. The IRA: As usual, the IRA's a patience game. Having stuck short puts out there in things on my shopping list (HYG, XLU, IYR, and EFA), the only thing to do here is wait until expiry, at which point I'll be assigned shares or the short puts will expire worthless. On the other end of the stick, I'm looking to dump pieces of my low-yielding TLT at or near all-time-highs and substantially up from my cost basis in those shares at or below 110, which is the last time I acquired shares. Unfortunately, I have been less than religious about keeping tracking of my cost basis of shares in the IRA, since the basic setup was that these were intended to generally be "never exit" or "never get called away" plays. However, I think U.S. treasuries have had a fairly good run, and there are probably better places to stick that capital. The /CL Chart: I've thrown up a monthly USOIL chart here to show how current prices in oil could be a multi-month, if not multi-year opportunity here to take a bullish assumption position in either /CL directly, USO, or one of the beaten-down oil exchange-traded fund sector exchange-traded funds (XOP, OIH, or XLE). With /CL implied/rank at 67/165, I've done some of that already with /CL out-of-the-money short puts, (See Posts Below), but this can also be done in USO more incrementally, since it's a much smaller instrument and has the added advantage of having .03 wide markets here. Alternatively, there is also the USO Zebra/Call Ratio Spread, about which I'll post separately ... .
TVC:USOIL
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
Banks vs Utilities Holding UpUpdates coming from the previous "Banks Look Cheap vs Utilities" chart. For those who don't remember here are the flows we have been tracking: Now it is clear US 10-year Yields are starting to withdraw again, although this time Banks vs Utilities are less affected. I have been talking with clients recently around this space and there is broadly no concern. Valuations in Banks remain supportive and as long as the trend remains in tact there is little to concern, however as we enter into a weaker than expected end of year outlook for US Equities I am updating the Outlook: Outlooks changed from Buy to Neutral, any weakness in banks is actionable in my opinion. As always keep the comments and questions coming, please like if the ideas are helping and any feedback is welcomed! Thanks
AMEX:KBE
by ridethepig
OPENING (IRA): XLU JAN 17TH 52 SHORT PUT... for a .48 credit. Notes: One of the underlyings on my IRA shopping list, pulling the trigger here on a "not a penny more"* short put at the 52 strike with a resulting cost basis of 51.52/share if assigned on the 52 shortie. The current yield is 3.06% with an annualized dividend of 1.85. Will look to roll out "as is" at least quarterly for further cost basis reduction until assigned or that's no longer productive. * -- See HYG "Not a Penny More" Short Put Post, Below.
AMEX:XLULong
by NaughtyPines