NaughtyPines

THE WEEK AHEAD: EBAY, FB, MSFT, BABA, AAPL, XOM EARNINGS

NYSE:BABA   Alibaba Group Holdings Ltd
More earnings ... .

EBAY             announces on the 31st (Wednesday) after market open: implied volatility percentile/rank 72/background 33.
FB             , on the 31st after: 90/34
MSFT             , also on the 31st after: 100/29
BABA, on February 1st before: 94/40
AAPL             , on February 1st after: 97/30
XOM             , on February 2nd before: 91/19

Of these, BABA looks the most promising. Preliminarily, the Feb 9th             192.5/222.5 20 delta short strangle pays 4.71 at the mid, with its defined risk counterpart -- the Feb 9th             187.5/192.5/222.5/227 iron condor -- paying 1.77.

On the exchange traded fund front: While there are underlyings with implied volatility in the greater than 70 percentiles, background implied remains muted, so these are likely to be of limited productiveness. Here are the top five: IYR             (100/17); FXI             (100/27); XLU             (93/17); XLB             (87/18).

Volatility products: While VIX             finished Friday lower to 11.08, futures didn't follow suit and were off only between .05-.10 across the term structure. Feb was off .10, but the March contract actually finished up by .05, meaning that neither VXX             nor UVXY             were down much. While I'm not in a position to read the minds of /VX futures traders, my guess is that they're positioning anew for the expiry of the continuing resolution that expires on February 8th (that play wasn't particularly productive the last go-round) or, more likely, a debt ceiling showdown in March, which has far more important ramifications for the market than a government shut-down, since a debt ceiling actually involves U.S. default concerns (historically, virtually illusory), while a failure to fund the government does not.

In any event, I missed the opening of the March 9th             weekly in VXX             to put on my weekly short volatility play, and have spreads on in the monthly at current levels (short leg at 27), so will look to add in spreads in the March 23rd when it opens. Granted, what I have on looks a little battered here, particularly in the late February, early March expiries. The only thing to do is be patient, wait, and see whether the futures succumb to pressure to unload at least their February contracts so they're not left holding the bag and then to roll out for duration if particular spreads can't be taken off in profit or scratched out at expiry ... .
What is your holding time frame?
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NaughtyPines thenomadictrader
@thenomadictrader, Most people who play earnings go with extremely short duration setups, looking to take advantage of volatility crush immediately following the announcement. My general rule is to use the Friday expiry for the week that immediately follows the announcement; some like to use the Friday in the same week of the announcement, but I like to have a little additional time to manage the trade if necessary (which is why I'd use the Feb 9th expiry instead of the 2nd).
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Thanks for sharing the analysis on the BABA trade. I agree it looks promising. May take a small position and watch it play out myself. Your analysis is very helpful learning what to look for and analyze in these types of trades.
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NaughtyPines thenomadictrader
@thenomadictrader, I'm basically a delta-based trader, so you'll see me saying "sell the 20's (or 30's)" a good deal. Basically, I'm selling the 20 delta call and the 20 delta put (or, for the more aggressive) the respective 30 deltas for nondirectional/delta neutral short strangles or their defined risk counterparts (iron condors).
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