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.
