THE WEEK AHEAD: GDX, GDXJ, XOP, EEM, VIX/VIX DERIVATIVES
EARNINGS
No options highly liquid underlying earnings announcements this coming week.
EXCHANGE-TRADED FUNDS
Ordered by implied volatility rank, with GDX, GDXJ, and XOP providing the best rank/implied volatility metrics for premium selling (>50% rank/>35% implied):
SLV (96/29)
GLD (95/18)
GDX (82/35)
GDXJ (80/40)
TLT (69/16)
FXI (54/26)
XOP (52/43)
The 16 delta GDXJ Oct 18th 36/49 short strangle is paying 1.16 at the mid price (.58 at 50 max), the GDX Oct 18th 30 short straddle, 3.19 (.80 at 25 max), and the XOP Oct 18th
21 short straddle, 2.67 (.67 at 25 max).
BROAD MARKET
EEM (51/23)
IWM (48/25)
SPY (43/20)
QQQ (35/25)
EFA (22/17)
Pictured here is an EEM 1 x 2 short strangle in the January cycle with the short put camped out at the 18 delta, the doubled up short calls at the 8's to accommodate skew. Paying 1.18 at the mid price (.59 at 50% max), it has break evens of 32.82/45.59 and delta/theta metrics of .97/1.56.
Alternatively, the Jan 17th 39 short straddle is paying 4.32 (1.08 at 25 max).
If EEM doesn't suit your fancy, the IWM Jan 17th 131/156 short strangle camped out around the 16 deltas is paying 2.16 at the mid price (1.08 at 50 max); the QQQ Dec 20th 16 delta 158/202 short strangle pays 4.05 (2.02 at 50 max); and the SPY March 20th 240/315, 7.39 (3.70 at 50 max).*
VIX/VIX DERIVATIVES
Continue to look to add small, bearish assumption plays in VIX/VIX derivatives on VIX prints of >20, with higher prints naturally being better. With the derivatives in particular, look to VIX levels as the guide for entries and not to the derivative itself (e.g., UVXY, VXX), since beta slippage and contango plays into these derivatives, making it more difficult to discern levels. The general plays remain: at-the-money VIX long put verticals or short call verticals paying at least one-third the width of the spread in credit (or, in the case of the debit spread, less than two-thirds the width of the spread in debit) and with UVXY and VXX, short call verticals with similar metrics.**
* -- Why the different expiries? I've been generally running broad market plays through a gauntlet of at-the-money delta neutral short straddle pricing prior to deciding which expiry begins to be "worthwhile," looking for the short straddle to pay at least 10% of the stock price. If the ATM short straddle isn't paying that, it isn't worth putting on a short strangle in shorter duration for me. The downside is that longer-dated setups are slower to come in and therefore tie up buying power for longer. The upside: they're wider setups relative to current price, so less subject to shorter term whipsaw.
** -- As previously pointed out, there is assignment risk with UVXY and VXX, and I'd rather be short shares via assignment on a short call than long shares via assignment on a short put. VIX is cash settled with no assignment risk, so whether there is a short put aspect or short call aspect is of little import for a VIX play.
No options highly liquid underlying earnings announcements this coming week.
EXCHANGE-TRADED FUNDS
Ordered by implied volatility rank, with GDX, GDXJ, and XOP providing the best rank/implied volatility metrics for premium selling (>50% rank/>35% implied):
SLV (96/29)
GLD (95/18)
GDX (82/35)
GDXJ (80/40)
TLT (69/16)
FXI (54/26)
XOP (52/43)
The 16 delta GDXJ Oct 18th 36/49 short strangle is paying 1.16 at the mid price (.58 at 50 max), the GDX Oct 18th 30 short straddle, 3.19 (.80 at 25 max), and the XOP Oct 18th
21 short straddle, 2.67 (.67 at 25 max).
BROAD MARKET
EEM (51/23)
IWM (48/25)
SPY (43/20)
QQQ (35/25)
EFA (22/17)
Pictured here is an EEM 1 x 2 short strangle in the January cycle with the short put camped out at the 18 delta, the doubled up short calls at the 8's to accommodate skew. Paying 1.18 at the mid price (.59 at 50% max), it has break evens of 32.82/45.59 and delta/theta metrics of .97/1.56.
Alternatively, the Jan 17th 39 short straddle is paying 4.32 (1.08 at 25 max).
If EEM doesn't suit your fancy, the IWM Jan 17th 131/156 short strangle camped out around the 16 deltas is paying 2.16 at the mid price (1.08 at 50 max); the QQQ Dec 20th 16 delta 158/202 short strangle pays 4.05 (2.02 at 50 max); and the SPY March 20th 240/315, 7.39 (3.70 at 50 max).*
VIX/VIX DERIVATIVES
Continue to look to add small, bearish assumption plays in VIX/VIX derivatives on VIX prints of >20, with higher prints naturally being better. With the derivatives in particular, look to VIX levels as the guide for entries and not to the derivative itself (e.g., UVXY, VXX), since beta slippage and contango plays into these derivatives, making it more difficult to discern levels. The general plays remain: at-the-money VIX long put verticals or short call verticals paying at least one-third the width of the spread in credit (or, in the case of the debit spread, less than two-thirds the width of the spread in debit) and with UVXY and VXX, short call verticals with similar metrics.**
* -- Why the different expiries? I've been generally running broad market plays through a gauntlet of at-the-money delta neutral short straddle pricing prior to deciding which expiry begins to be "worthwhile," looking for the short straddle to pay at least 10% of the stock price. If the ATM short straddle isn't paying that, it isn't worth putting on a short strangle in shorter duration for me. The downside is that longer-dated setups are slower to come in and therefore tie up buying power for longer. The upside: they're wider setups relative to current price, so less subject to shorter term whipsaw.
** -- As previously pointed out, there is assignment risk with UVXY and VXX, and I'd rather be short shares via assignment on a short call than long shares via assignment on a short put. VIX is cash settled with no assignment risk, so whether there is a short put aspect or short call aspect is of little import for a VIX play.