After a short break for shortened trading weeks for the Christmas and New Year's holidays (how bout them holiday markets, huh?), I'm back to my regular routine. Here's what's on tap for the coming week ... .


I'm not seeing much on the earnings front for volatility contraction plays or premium plays in high implied volatility around earnings that are giving me that "come hither" look. I did look at DAL (65/40; earnings on Thursday), but it's got goofy two-and-a-halfs on the call side in the Feb expiry where I'd want to set up my tent, which could make call side trade management problematic. The very last type of headache I want to have with a trade is being forced to roll to a goofy strike or do something whacky because of strike unavailability. That being said, the February 15th 45 short put is paying 1.26 (30 delta) with a break even of 43.74 (8.5% discount over current price; divvy yield is 2.80%; 1.40 annualized) should that type of play strike your fancy.

Exchange-Traded Funds Ordered by Implied Volatility Rank:

GDX 73/33
USO 69/53
OIH 64/46
IYR 62/21
GDXJ 59/34

... And Ordered by 30-Day Implied:

UNG 38/54
USO 59/53
OIH 64/46
XOP 53/43
EWZ 27/35

As usual, petro ( USO , OIH , XOP ) is sticking out for volatility , which is kind of why I like to be in some kind of play with a premium selling component on a virtually constant basis. OIH and XOP continue to dribble along at the low end of their ranges, so my preference would be for bullish assumption setups there with no or limited upside risk (short puts, upward call diagonals, lizards) in the short to medium term. Having gotten out of an XOP upward call diagonal last week, I'll probably re-up with something in the February cycle and will post that trade here separately later in the week.

Broad Market:

QQQ: 59/30
IWM: 52/26
XLK: 48/30
SPY: 25/24

I've thrown XLK (technology) in here because of its close correlation with SPY ( 3-month of .86). In comparison, it's got slightly better volatility metrics, but is also one-fourth the price, so you can potentially proxy a broad market play without hanging as much buying power out there as you would with one of the majors.

Trade of the Week:

Pictured here is an FCX (62/57) upward call diagonal ( bullish assumption) setup (with an overlay of copper futures ). Although it's got earnings in 18, I'm just looking to get in on weakness and in a fairly high volatility environment. Moreover, I can get in fairly cheaply with a greater than 180 day back month, which will give me plenty of time to reduce cost basis in the diagonal. I went with the March 12 short call strike for the front month because the Feb 11 was "too close," and the Feb 12 was "too far away" (not enough collected for the short call). Metrics: Max Loss on Setup: $278; Max Profit on Setup: $122; Break Even: 10.78 versus 10.82 spot; Debit Paid to Spread Width Ratio: 69.5%.
Trade active: Filled on the March/August 8/12 upward call diagonal, but for a 2.89/contract debit; max profit of 1.11/contract; BE at 10.89 versus 11.00 spot; debit paid to spread width ratio: 72.2%.
Trade closed manually: Closed for 3.42/contract credit, .03 shy of 50% max with 57 days to go until front month expiry (.53/$53 per contract profit; 18.3% ROC). I have one early year BTFD trade left in X ... .
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