THE WEEK AHEAD: BBBY, MU EARNINGS; ICLN, SLV, XLE, IWM/RUT
EARNINGS:
I've culled down all of next week's earnings announcements to options highly liquid underlyings where the 30-day is >50% and am left with two potential candidates for volatility contraction plays: BBBY (23/99/26.3%)* and MU (23/53/14.0%).
BBBY announces on Thursday before market open, so look to put on a play in the waning hours of Wednesdays session; MU, announces on Thursday after market close.
Pictured here is a delta neutral short strangle in the February cycle (49 days), which was paying 1.27 at the mid price as of Friday close with break evens wide of two times the expected move on the call side and slightly above the 2x on the put and delta/theta of -1.07/3.12. Naturally, you can see the call side skew here, with the similarly-delta'd short put 3.76 away from current price, but the call 7.24 away, so the underlying may merit a look at alternative plays that take advantage of this.
In contrast, the shorter duration January 15th 15/22.5 (14 days) was paying 1.02, with delta/theta metrics of .21/7.91, with the natural trade-off's being less room to be wrong, but a quicker resolution of the trade should you be right.
With MU, I'd look at a Plain Jane 2x expected move short strangle, which here would be the January 15th 68.5/85, paying 1.71 or the February 19th 62.5/90, paying 2.30.
EXCHANGE-TRADED FUNDS RANKED BY PERCENTAGE THE FEBRUARY 19TH AT-THE-MONEY SHORT STRADDLE PAYS AS A FUNCTION OF STOCK PRICE:
ICLN (9/51/15.0%)
SLV (33/48/13.6%)
XLE (23/41/11.4%)
XBI (27/39/11.2%)
EWZ (14/39/11.1%)
GDX (15/38/11.1%)
XME (14/38/10.7%)
BROAD MARKET:
IWM (25/31/8.1%)
QQQ (19/27/7.1%)
SPY (15/22/5.4%)
EFA (20/21/5.2%)
BOND FUNDS:
TLT (16/18/4.4%) (Yield: 1.609%)
HYG (7/13/2.0%) (Yield: 4.917%)
EMB (4/7/2.0%) (Yield: 4.024%)
AGG (28/8/1.7%) (Yield: 2.252%)
* -- The first number is the implied volatility rank or percentile (i.e., where 30-day implied is relative to where it's been over the last 52 weeks); the second, 30-day implied; and the third, what the February 19th at-the-money short straddle is paying as a function of stock price.
I've culled down all of next week's earnings announcements to options highly liquid underlyings where the 30-day is >50% and am left with two potential candidates for volatility contraction plays: BBBY (23/99/26.3%)* and MU (23/53/14.0%).
BBBY announces on Thursday before market open, so look to put on a play in the waning hours of Wednesdays session; MU, announces on Thursday after market close.
Pictured here is a delta neutral short strangle in the February cycle (49 days), which was paying 1.27 at the mid price as of Friday close with break evens wide of two times the expected move on the call side and slightly above the 2x on the put and delta/theta of -1.07/3.12. Naturally, you can see the call side skew here, with the similarly-delta'd short put 3.76 away from current price, but the call 7.24 away, so the underlying may merit a look at alternative plays that take advantage of this.
In contrast, the shorter duration January 15th 15/22.5 (14 days) was paying 1.02, with delta/theta metrics of .21/7.91, with the natural trade-off's being less room to be wrong, but a quicker resolution of the trade should you be right.
With MU, I'd look at a Plain Jane 2x expected move short strangle, which here would be the January 15th 68.5/85, paying 1.71 or the February 19th 62.5/90, paying 2.30.
EXCHANGE-TRADED FUNDS RANKED BY PERCENTAGE THE FEBRUARY 19TH AT-THE-MONEY SHORT STRADDLE PAYS AS A FUNCTION OF STOCK PRICE:
ICLN (9/51/15.0%)
SLV (33/48/13.6%)
XLE (23/41/11.4%)
XBI (27/39/11.2%)
EWZ (14/39/11.1%)
GDX (15/38/11.1%)
XME (14/38/10.7%)
BROAD MARKET:
IWM (25/31/8.1%)
QQQ (19/27/7.1%)
SPY (15/22/5.4%)
EFA (20/21/5.2%)
BOND FUNDS:
TLT (16/18/4.4%) (Yield: 1.609%)
HYG (7/13/2.0%) (Yield: 4.917%)
EMB (4/7/2.0%) (Yield: 4.024%)
AGG (28/8/1.7%) (Yield: 2.252%)
* -- The first number is the implied volatility rank or percentile (i.e., where 30-day implied is relative to where it's been over the last 52 weeks); the second, 30-day implied; and the third, what the February 19th at-the-money short straddle is paying as a function of stock price.