EARNINGS:
It's a fairly light week for earnings, but there is some highly liquid underlyings to play for volatility contraction:
CHWY (--/74): Monday, After Market Close.
LULU (64/42): Wednesday After Market Close.
COST (44/23): Thursday, After Market Close.
ORCL (42/26): Thursday, After Market Close.
Pictured here is a CHWY January 17th 21 short put at the 20 delta, paying .78 at the mid price as of Friday close with a 20.22 break even. In this particular case, I'm not looking to play earnings for volatility contraction, but waiting for earnings to pass, as well as lock up to end, which is supposed to occur on the 11th (Wednesday) with a whopping 83% of outstanding shares subject to lockup. Depending on what happens with the share price at the end of lock up, as well as implied volatility, I will look to put on a play thereafter.
The only other play I'm potentially interested in is LULU, where the January 17th 190/200/260/270 iron condor is paying 2.61 with delta/theta metrics of -1.69/5.35. It's not a one-third the width setup, but LULU has had a tendency to move, so my inclination would be to go wider to stay clear of potential friskiness.
EXCHANGE-TRADED FUNDS:
UNG (55/54)
TLT (44/13)
USO (21/30)
GLD (19/10)
GDXJ (18/27)
With the possible exception of UNG, shorter duration premium selling isn't ideal here, with rank below 50% and 30-day below 35%.
As an interesting aside, however -- compare and contrast premium selling in UNG and USO versus trading /NG and /CL directly, using at-the-money short straddle pricing:
UNG January At-the-Money Short Straddle: 2.68 versus 18.03 (14.9%)
/NG January At-the-Money Short Straddle: .309 versus 2.25 (13.1%)
USO April At-the-Money Short Straddle: 1.75 versus 12.32 (14.2%)
/CL March At-the-Money Short Straddle: 6.76 versus 59.07 (11.4%)
BROAD MARKET:
EEM (8/16)
QQQ (7/16)
IWM (6/16)
SPY (2/13)
First Expiries in Which At-the-Money Short Straddle Credit Exceeds 10% of Value of Underlying:
EEM: June: --4.48 versus 43.07 (10.4%)
QQQ: June -- 21.49 versus 205.00 (10.5%)
IWM: September -- 20.05 versus 162.83 (12.3%)
SPY: September 34.46 versus 314.87 (10.9%)
As with the exchange-traded funds, short duration premium selling isn't paying here, so your choices are to hand sit or sell in higher implied volatility expiries farther out in time. I've been largely opting for the latter, while simultaneously exercising some restraint as to sizing, since the last thing you want to do is tie up buying power with longer-dated setups, only to have literally nothing left over to take advantage of shorter duration volatility pops. Secondarily, I've been managing these longer-dated setups more aggressively, taking them off in profit in many cases a good deal short of 50% max.
FUTURES:
/6B (60/12)
/NG (55/58)
/CL (21/29)
/6E (20/5)
/GC (19/10)
As with the exchanged-traded funds, volatility is in natty and oil with /NG paying in short duration (January). One thing I noticed is that /CL expiry-specific premium selling doesn't necessarily lend itself to going longer-dated (at least at this moment in time) since implied is about the same regardless of where you go (i.e., January: 28.9%; February: 29.5%; March: 29.3%), so all you're basically getting paid for is duration, as compared to -- for example -- expiry-specific implied in SPY, which generally increases incrementally over time (i.e., January: 14.5%; February: 15.7%; March: 16.8%, etc.). This is not necessarily a bad thing, just an observation of what you're getting by going out farther in time with /CL options versus other instruments that have a sort of expiry-specific implied volatility "term structure."
VIX/VIX DERIVATIVES:
VIX finished Friday at 13.62, with /VX futures contracts trading at 16.32, 17.51, 17.63, and 18.19 in January, February, March, and April respectively. Consequently, the contango environment remains productive for term structure trades in those expiries, although it's apparent that you won't get much trading February over January due to the fairly small differential between where those two contracts are trading at the moment. In practical terms, the February 17/19 short call vertical is paying .65 with a 17.65 break even versus 17.51; the March 17/19, .65, with a 17.65 versus 17.63. In other words, it doesn't pay to go longer in duration (February versus March) here ... .
As before, I'll look to put on bullish assumption plays in VXX or UVXY at extreme lows (these setups don't work well in VIX directly due to /VX term structure) and add bearish assumption in VIX, VXX, and/or UVXY on VIX pops to greater than 20 on top of any VIX term structure trades that I'm working ... .
It's a fairly light week for earnings, but there is some highly liquid underlyings to play for volatility contraction:
CHWY (--/74): Monday, After Market Close.
LULU (64/42): Wednesday After Market Close.
COST (44/23): Thursday, After Market Close.
ORCL (42/26): Thursday, After Market Close.
Pictured here is a CHWY January 17th 21 short put at the 20 delta, paying .78 at the mid price as of Friday close with a 20.22 break even. In this particular case, I'm not looking to play earnings for volatility contraction, but waiting for earnings to pass, as well as lock up to end, which is supposed to occur on the 11th (Wednesday) with a whopping 83% of outstanding shares subject to lockup. Depending on what happens with the share price at the end of lock up, as well as implied volatility, I will look to put on a play thereafter.
The only other play I'm potentially interested in is LULU, where the January 17th 190/200/260/270 iron condor is paying 2.61 with delta/theta metrics of -1.69/5.35. It's not a one-third the width setup, but LULU has had a tendency to move, so my inclination would be to go wider to stay clear of potential friskiness.
EXCHANGE-TRADED FUNDS:
UNG (55/54)
TLT (44/13)
USO (21/30)
GLD (19/10)
GDXJ (18/27)
With the possible exception of UNG, shorter duration premium selling isn't ideal here, with rank below 50% and 30-day below 35%.
As an interesting aside, however -- compare and contrast premium selling in UNG and USO versus trading /NG and /CL directly, using at-the-money short straddle pricing:
UNG January At-the-Money Short Straddle: 2.68 versus 18.03 (14.9%)
/NG January At-the-Money Short Straddle: .309 versus 2.25 (13.1%)
USO April At-the-Money Short Straddle: 1.75 versus 12.32 (14.2%)
/CL March At-the-Money Short Straddle: 6.76 versus 59.07 (11.4%)
BROAD MARKET:
EEM (8/16)
QQQ (7/16)
IWM (6/16)
SPY (2/13)
First Expiries in Which At-the-Money Short Straddle Credit Exceeds 10% of Value of Underlying:
EEM: June: --4.48 versus 43.07 (10.4%)
QQQ: June -- 21.49 versus 205.00 (10.5%)
IWM: September -- 20.05 versus 162.83 (12.3%)
SPY: September 34.46 versus 314.87 (10.9%)
As with the exchange-traded funds, short duration premium selling isn't paying here, so your choices are to hand sit or sell in higher implied volatility expiries farther out in time. I've been largely opting for the latter, while simultaneously exercising some restraint as to sizing, since the last thing you want to do is tie up buying power with longer-dated setups, only to have literally nothing left over to take advantage of shorter duration volatility pops. Secondarily, I've been managing these longer-dated setups more aggressively, taking them off in profit in many cases a good deal short of 50% max.
FUTURES:
/6B (60/12)
/NG (55/58)
/CL (21/29)
/6E (20/5)
/GC (19/10)
As with the exchanged-traded funds, volatility is in natty and oil with /NG paying in short duration (January). One thing I noticed is that /CL expiry-specific premium selling doesn't necessarily lend itself to going longer-dated (at least at this moment in time) since implied is about the same regardless of where you go (i.e., January: 28.9%; February: 29.5%; March: 29.3%), so all you're basically getting paid for is duration, as compared to -- for example -- expiry-specific implied in SPY, which generally increases incrementally over time (i.e., January: 14.5%; February: 15.7%; March: 16.8%, etc.). This is not necessarily a bad thing, just an observation of what you're getting by going out farther in time with /CL options versus other instruments that have a sort of expiry-specific implied volatility "term structure."
VIX/VIX DERIVATIVES:
VIX finished Friday at 13.62, with /VX futures contracts trading at 16.32, 17.51, 17.63, and 18.19 in January, February, March, and April respectively. Consequently, the contango environment remains productive for term structure trades in those expiries, although it's apparent that you won't get much trading February over January due to the fairly small differential between where those two contracts are trading at the moment. In practical terms, the February 17/19 short call vertical is paying .65 with a 17.65 break even versus 17.51; the March 17/19, .65, with a 17.65 versus 17.63. In other words, it doesn't pay to go longer in duration (February versus March) here ... .
As before, I'll look to put on bullish assumption plays in VXX or UVXY at extreme lows (these setups don't work well in VIX directly due to /VX term structure) and add bearish assumption in VIX, VXX, and/or UVXY on VIX pops to greater than 20 on top of any VIX term structure trades that I'm working ... .