NaughtyPines

THE WEEK AHEAD: EWY, FEZ, FXE, AND OIH/XOP/XLE

AMEX:EWY   ISHARES INC MSCI SOUTH KOREA ETF
With VIX in another ebb and a paucity of high quality premium selling earnings plays in the making for next week with both high implied volatility rank and high implied volatility , I'm looking at exchange traded funds instead for potential plays.

For instance, EWY , the South Korea exchange traded fund, makes sense in the current geopolitical environment, and its implied volatility rank and implied volatility reflect this, coming in at 55/22. It doesn't meet my usually standards of >70 and >35, but sometimes the market doesn't allow you to be picky. The June 16th 56/59/65/68 iron condor brings in .81 at the mid (not quite up to my usual 1/3rd the width of the wings snuff); alternatively, the June 16th 57/62/62/67 iron fly brings in 2.76. A drawback is that this instrument only has monthlies, a situation I'm not fond of ... .

With French election finals on the horizon on May 7th, another play that makes sense against the backdrop of "news," is FEZ ( Euro Stoxx 50 ) (49/21). However, I previously attempted to get a fill of an iron fly before the primaries, and it was quite pesky, particularly on the call side. Currently, I'm unable to get a mid price quote for the June 9th 34.5/37.5/37.5/40.5 iron fly or a similar setup in the June 16th expiry due to the fact that the long calls where I want to set up are no bid.

With FXE (the Euro proxy), which I tend to play as I would play EURUSD , I would go directionally short. The background implied volatility is so low that it just doesn't make sense as a straightforward premium selling play since the contraction that's usually a feature of these plays is likely to be minor; moreover, I have a directional assumption in a tightening Fed environment versus a loose to easing ECB environment ( bearish ).

There are a couple of ways to play it: (a) ATM short call verts where the break even is around 106 (e.g., the June 16th 105/108 short call vert; 1.20 cr ; BPE 1.80; BE at 106.20), legging in small in the event it rips higher on a Macron win (currently, the likely outcome); (b) a call diagonal that gives you some flexibility on the short call side of things (e.g., a June 16th 107 short call; Sept 15th 110 long call; .07 cr ; 2.93 BPE ) without exposing you to downside risk in the event that the Euro caves in at some point on dollar strength or Euro weakness.

Lastly, I've got eyeballs on oil . It's dipped somewhat dramatically off highs, so I'm looking at various bullish plays in OIH , XOP , and/or XLE , all of which track oil prices somewhat religiously. Currently, I'm still working an XOP put diagonal, but am amenable to getting into another XOP play. (Put diagonal: XOP June 16th 33 short put; Dec 15th 27 long put; .10 credit at the mid; 5.90/contract BPE ; PMCC: XOP June 16th 37 short call/Dec 15th 24 long call; 10.82 db ).
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