EWZ trade ideas
EWZ - ISHARES MSCI BRAZIL SHORT SETUPThe price seems to build an H&S pattern, not very perfect in shape. A strong support to break is the 27$ level. Look for a breakout confermation in that level for shorting opportunities. Possible target 23$ level. Risk reward ratio 4,7. Possible gain 14,9%.
EWZ weekly - up trend unchanged - 5/7/2016EWZ failed to break out and lost about $2 from last week's close. All indicators are still healthy (so far).
SOLD TO OPEN EWZ MAY 20TH 17.5/20.5/29.5/32.5 IRON CONDORGoing to where the volatility is to sell premium, and that's in EWZ (implied vol rank >70/implied vol is >50). (Plus, I'm kinda ticked that I screwed up closing out that rolled EWZ setup without checking the trade chain ahead of time ... ).
In any event, here are the metrics for the setup:
Probability of Profit: 74%
Max Profit: $66/contract
Buying Power Effect: $234/contract
Notes: I'm continuing to go with small defined risk setups here. EWZ has been "hot" volatility wise, and I may want to layer on additional setups going forward in the instrument, dispersing risk over several expiries. I also want to keep powder dry for broad market premium selling plays and/or additional long volatility setups, depending on which way the market goes ... .
EWZ weekly - golden cross - 4/29/2016EWZ had a golden cross (10 week MA above 40 week MA). And it appears to be closed above the blue resistance (a small breakout?) RSI and MACD all broken out.
BOUGHT EWZ MAY 27TH 22.5/31.5 SHORT STRANGLE TO CLOSEOriginally opened for a $104 credit, I closed this out today for a $60 debit, yielding a $40.92/contract profit after fees/commissions ... .
THE FORCE BEHIND BRAZIL'S RECENT BULLISHNESS (ANALYSIS ON EWZ) If you've been paying attention to headlines about Brazil recently, the term "impeachment" seems to be all over the place. But what's really driving prices upwards in the country's stock market? Is it the daily swaying impeachment probability or something else?
Today's instrument to be analysed is EWZ, the ETF that seeks to track the investment results of the MSCI Brazil 25/50 Index. The fund generally invests at least 95% of its assets in the securities of its underlying index and in depositary receipts ("DRs") representing securities in its underlying index. The index, which consists of stocks traded primarily on the BM&FBOVESPA, is a free float-adjusted market capitalization-weighted index with a capping methodology applied to issuer weights so that no single issuer of a component exceeds 25% of the underlying index weight, and all issuers with weight above 5% do not cumulatively exceed 50% of the underlying index weight. The fund is non-diversified. (source: finance.yahoo.com)
The chart's left side is late October 2014, when president Dilma Rousseff got re-elected. As can be seen, EWZ price has since then maintained a close correlation with the price of other Emerging Market ETFs and Indexes
2015 was a perfect storm for Emerging Markets. With China's slowdown, a commodity crash, the strong dollar, a Fed rate hike, the light at the end of the tunnel was nowhere to be seen.
Commodities
Many emerging markets depend on commodities like oil, iron and copper in order for their economies to do well.
Commodity prices tumbled in 2015, with Crude Oil hitting a 7-year low in December. Oil and other commodities are not set to boom in 2016, but they likely won't tumble as much as they did last year, specially if OPEC agrees on setting production quotas again.
China's Slowdown
China is transitioning to a consumer-led economy from one led by manufacturing and construction, meaning its demand for all those commodities has plummeted.
China has been cutting rates, weakening the currency and pumping money into the economy to counteract the slowdown.
Many experts believe China's growth may slow down more in 2016, but not at a faster pace. A more stable China should help the countries that depend on it.
Strong Dollar and Rate Hike
The good news is that a weak currency lets emerging markets sell products abroad more cheaply, making them more attractive to foreign buyers. That eventually boosts exports and, in turn, economic growth.
The bad news is that emerging markets have to pay off some debt in U.S. dollars. In total, there's $3 trillion of emerging market debt denominated in dollars, according to Wells Fargo. As the dollar rallies, that debt gets more expensive to pay back.
The rate hike makes the US Bonds more attractive and attract foreign money to the US. This money has to be exchanged into US Dollars and ends up boosting the currency.
Many leaders in emerging markets are actually glad the Fed finally raised rates. So much uncertainty surrounded the first rate hike, and now that it's done, that gives emerging markets more clarity.
With all this in mind, it's silly to say Dilma's possible impeachment is the main responsible for the upwards drive in Brazil's stock market prices...
TRADE IDEA: EWZ MAY 27TH 22.5/31.5 SHORT STRANGLEI already have a couple EWZ premium selling setups on, but with an implied volatility rank of 95 and implied volatility of 59, I'm going to put some more on here. I'm going small and using multiple expirations for setups to disperse my risk, while taking advantage of this fairly low priced underlying to haul in some pretty good credit.
Here's the metrics:
Probability of Profit: 73%
Max Profit: $105/contract
Buying Power Effect/Max Loss: ~$271/contract; undefined
Notes: I'm going short strangle here due to the limited buying power effect, as well as better metrics over an iron condor, where the long options "drag" on max proft. As with all my short strangles, I'll look to take this off at 50% max profit.
PREMIUM SELLNG: NEXT WEEK REMAINS A "WASTELAND"Another week of wasteland for premium selling, with EWZ again topping the volatility charts for non earnings plays, although I may go small with an IWM setup in the May monthly (it's the most volatile amongst the index ETF's, which ain't saying much). I've got one more short-term RUT/IUX setup on that I will need to address, but other than that, it's going to be a light week trading wise from where I'm sitting right now.
Although you can naturally dip your toe into some of the more volatile individual underlyings pre earnings, my preference is to keep powder dry until the actual announcement is upon us before diving in, and there simply isn't anything on next week's earnings calendar that meets my standards for "options playability."
So, in the absence of some monumental sea change here, I'm going to be mostly hand sitting for the week on options plays, but may dabble with scalping /ES intraday and/or look for another opportunity to go long volatility in a VIX derivative, assuming we get to around VIX 13-ish.
BUYING TO CLOSE EWZ APRIL 22ND 21P/24P/22.5C/27C BROKEN IRON FLYThis rolled out, "goofy" setup (it basically morphed into a long strangled inverted short strangle upon rolling) has moved into profit, so -- like the LULU short strangle (i.e., broken and rolled) -- I'll look to take it off at NY open for a small profit, so that I can redeploy the buying power elsewhere in a higher probability setup ... .
I'll post the trade chain once I've closed it out ... .
BOUGHT TO CLOSE EWZ APRIL 15TH 18/22.5 SHORT PUT VERTICALClosing out the short put side of my iron fly for a .10 ($10), as it's basically nearing worthless, and I'd like to clean up this broken setup here if I can. This left me with the 22/25.5 short call side of the setup to deal with, which I rolled out to the April 23rd expiry 22.5/27 strikes for a .26 ($26) credit. If I'm going to attempt to improve strikes, I do it fairly slowly and incrementally ... .
I then proceeded to sell an EWZ short put vertical in the same expiration at the 21/24 strikes for a .29 ($29 credit).
This leaves me with a less than ideal setup, since strikes of the short put vert overlap with those of the short call vert ... . Generally speaking, you never want to invert an iron condor/fly .... .
HOUSEKEEPING: EWZ APRIL 15TH 18.5/22/22/25.5 IRON FLYWith the short put side of my EWZ iron fly nearing worthless (<.10/<$10), I'll be looking to close that out tomorrow (I neglected to notice it today, my usual "housekeeping" day where I clean up trades). Although the short call side at 22/25.5 still has 18 DTE to "work out," I think that is unlikely, so I'll look at rolling that side out for duration a modest improvement of the short put strike. I usually tackle any strike improvement incrementally, rolling out another 30-45 days, improve the spread by at least one strike, see what happens, roll again if it hasn't moved in my favor (lather, rinse, repeat).
Fortunately, the implied volatility in EWZ remains high here, so I have a shot a getting an additional dose of premium ... .
brazil looking strong looks like there might be some more buying here. especially if SPY is green pre market. maybe a day swing play. Watch for asian market results as well as south america.
EWZ - Time for a pullback?We have an interesting evening star dojo at a 200 MA and a major resistance line. This is very over bought, we could use a little more confirmation on the MACD. Will watch closely on monday at the open to make sure it isn't going parabolic up. There are a few gaps to fill on the downside. This presents an interesting short opportunity down to 22 even down to to around 20.
EWZ weekly - finally bottoming? - 3/4/2016In bull market in ONE week. (open price: 20.60, close price: 24.99, 21.3% gain). Weekly technical is in sweet spot and I think it has a lot potential. Waiting for some pullback and consolidation and a better entry.
EWZ -- APRIL 15TH 18.5/22/22/25.5 IRON FLYWith volatility ebbing out of the broader markets and earnings season, for all practical purposes, over, I'm looking to put on some small, defined risk, premium selling plays in April while the remainder of my March setups work themselves out. With an implied volatility rank at 60 and an implied volatility of 48, EWZ isn't the greatest play in the world for premium selling, but it is an ETF. They're less volatile than individual underlyings as a general matter, so I lower my premium selling standards accordingly.
There are a couple of different ways that you can look at an iron fly: (1) it's a defined risk short straddle; or (2) it's a really tight iron condor. I tend to treat them as "defined risk short straddles," because I manage short straddles differently from short strangles (an iron condor is basically a defined risk short strangle). With short strangles and iron condors, I look to take the whole trade off as a unit at 50% max profit.
Short strangles and iron flies are a different story. If you look at the metrics for this particular trade, the break evens are quite tight: 19.92 and 24.08 -- much tighter than they would be for a short strangle or iron condor setup, and there is virtual certainty that one side or the other will be tested sometime during the trade since the short options are basically at or near current price. As with all premium selling plays, though, you're looking for volatility to contract rolling into expiry, and you can profit from this circumstance even when -- with iron flies or short straddles -- price has broken one of the short strikes of your setup (but not the long side).
As always, there are trade offs with the setup: max profit is a 2.08 credit ($208/contract; BPE $142/contract). I couldn't get near that much credit if I went with a standard iron condor (an April 15 15.5/18.5/25.5/28.5 iron condor will rake in a whopping .41 in credit at the expense of a BPE of $259/contract). Because of this trade off and the fact that the probability of profit for an iron fly is basically a coin flip as compared to the iron condor's 70-75% probability of profit, I'll look to take this setup off at 25% max profit instead of the usual 50%.
Naturally, this isn't my preferred way of doing things. However, with underlyings below $50/share, you generally cannot take in enough premium if you're going with a defined risk arrangement to make it worthwhile unless you tighten your iron condor or go the "defined risk short straddle" or iron fly.
EWZ -- NON EARNINGS PREMIUM SELLING PLAYOkay, so there isn't a 1.00 worth of credit in this setup, but I'm going to put it on anyways due to its high IVR/high IV (79/52).
EWZ Jan 29 18.5/26 short strangle
POP%: 70%
Max Profit: $82/contract
BPE: ~$235
BE's: 17.68/26.82
EWZ oversold with bullish divergenceEWZ is at the lower bollinger band with stochastics oversold. It is backed up by the RSI also recently exiting the oversold lower boundary area, which is a buy signal. All the weak hands and people with close stops got flushed out. Now the MACD histogram also shows bullish divergence and is about to cross the zero line. A good risk to reward trade can be made placing stops at the low where they got flushed out earlier, now that they're gone. It was a good place, just the wrong time. Also observed is a pipe bottom candlestick followed by a gap up at the lower band.
