NaughtyPines

THE WEEK AHEAD: IBM, JNJ, NFLX EARNINGS; GDXJ, GLD, SLV, GDX

NYSE:IBM   INTERNATIONAL BUS MACH CORP
EARNINGS

IBM (54/26; Thursday), JNJ (56/23; Tuesday before market open), and NFLX (35/41; Wednesday after market close) announce earnings next week. Unfortunately, all of them have less than ideal metrics for a volatility contraction play (>70% rank/>50% implied), so I'm likely to pass on all of them. That being said:

Pictured here is an IBM 130/135/150/155 iron condor in the August cycle paying 1.53, break evens at 133.47/151.53, and delta/theta metrics of -2.47/2.80. The rank/implied metrics aren't ideal here (<70%/<50%), which is probably why it's also paying less than my idea one-third the width of the wings in credit. I would pass on it if you can't get filled for 1.67 or greater ... .


BROAD MARKET

TLT (31/11)
QQQ (8/17)
IWM (7/15)
SPY (6/12)
EEM (3/16)
EFA (5/10)

Short-term, broad market premium selling is about as crappy as it can get here. Your options are to (a) wait for a pop in volatility ; or (b) sell something farther out in time where the expiry implied is higher. I will probably opt for the latter if we don't get an uptick in volatility by July opex, since waiting can be unproductive, particularly if low volatility has infected the entire market and it becomes a "protracted thing."



SECTOR EXCHANGE-TRADED FUNDS

Premium selling opportunities are in gold and the miners for yet another week ... .

Top 5 By Rank: GDXJ (73/34), GLD (72/15), SLV (70/20), GDX (45/28), and TLT (31/11). Metrically, the most "ideal" play is in GDXJ (exchange-traded fund ideals: >50% rank/>35% background), although we're getting somewhat short in duration for another play in the August cycle. There isn't a September expiry available yet (there will probably be one after July expires), so it might be worth a look at GDXJ next week should volatility hang in there for a September play.


IRA TRADES

Not doing a ton here beyond managing my covered calls post-opex. Stuff on my shopping list ( XLU , XLP , HYG ) has all ground higher along with the rest of the market, so I just have to patient for another one of those December style "sell everything" dips or a major uptick in volatility in those instruments.* Although I have "not a penny more" short puts on in HYG , both XLP and XLU are out of range of that kind of play, it seems, unless I want to go far out in time and get paid very little ... .

* -- XLU (10/14), XLP (29/11), HYG (13/6).
Still carefully creeping account back to where it was before (I think it was) Feb of '18 and have been doing mostly short puts on small issues and scalping spy (as a more reliable mover even in these lo volatility days) using long just out of the money puts or calls around a week out. The scalping works well with careful, tight money management with the first otm or just atm keeping risk small (at 3 dte to a week out keeps risk low and over an up to a couple of hours trade the theta decay small enough) - a little less bang at ~50 delta but it is enough and cost rises fast when go intrinsic / in the money (at the money scales to account size much better). I know most short put traders use -30 delta or so but on small issues need the atm premium for it to fly. It makes the trade more directional of course but I plan for that and manage for it if I am wrong. First management is trying to pick something that will not tank (just now have aug16 10P in Ford) then if adverse move roll same strike watching extrinsic/dividend dates and ideally getting a dip with corresponding IV/premium bump. If it continues adverse and goes deep in the money the delta increases and eventually (unless it is a tanker - see mangement #1) this increases the ease of scratching (or better) out with a small price bump. Have done over 20 of these, most with a quick small gain in a day or two and am clearly on the up side. Only other position is short put in GPRO in it 34 days and just after first roll. This is the first real test of the "adverse move" management (actually not the best choice on the stability/non-tanker side) and it feels comfortable so far. Was down a bit till refined and see had (very poor early choice TZA) a 3 roll test that scratched out. In summing all net profit/loss results of this trade just now it is just net $2-85 / contract all one offs. Sorry about this ramble, in short am finding the short puts work well and would be glad to get any input you might have on the strategy I am using. Also thanks for another great weekly post and keep smiling!
Reply
Tom1trader Tom1trader
@Tom1trader, Should add on the scalping am only pretending to scalp if I do it today due to that idiot Pattern Day Trading rule. At first it was not applied to cash accounts as cash secured (now years ago) but now I wait for the day trade count to drop below 3 (as agreed "safe" from their concerns in a check with the trade desk (they are great and always pick up quickly for me) at Tasty Works.
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NaughtyPines Tom1trader
@Tom1trader, Ring that cash register! Basically, those are WOF (Wheel of Fortune) trades (the short puts). Sell the first strike OTM; if it doesn't work out by the time extrinsic has bled out, roll out "as is" for a credit to the next monthly. (I've used weeklies before, but they're generally not as liquid as the monthlies, so you lose a little bit getting filled). There is a point where the underlying is too small to do this decently because there is a huge delta difference between 1 strike OTM and 2 strikes OTM (for example). I generally draw the line around $20/share, although sometimes the IV is good enough to go smaller and still get something decent. Generally, when the short put gets to 70 delta long, I will go ahead and sell a call/short call vertical against to give me a little bit of extra credit collection and to reduce cost basis further in an attempt to just scratch it out, but also look at whether I can just roll it out, strike improve, and get a credit for doing that since that keeps the setup simple (just the short put). Sometimes it's necessary to take an incremental approach with broken short puts, strike improving small over multiple cycles or rolling out farther in time than you'd like to get a decent credit and strike improve. However, the general rule is to roll out "as is" until that's no longer productive, with .25 kind of being my personal "cut-off"; if I can't get that for a roll from month to month, I'll look at rolling farther out in time. I have occasionally done some short duration stuff, but it is generally of sufficient duration to give me a chance to roll out a few days prior to expiry rather than scrambling to get a fill on expiry Friday (which I have also done -- nerve-wracking).
Reply
Tom1trader NaughtyPines
@NaughtyPines, Thanks for adding your perspective (lots of good stuff I had not considered which will save me $ on this). No choice on stock size, must cut around $15 and do not worry too much about precise in or out of money, if I like the trade on the small stock must usually go with peak extrinsic strike and yes monthlies. If almost any trade hits the majority of my target in a day or very short time I take it off the table and look for the next trade without looking back. My very first short put was opened this year April 18 so I can refine it a lot yet. Thanks!
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NaughtyPines Tom1trader
@Tom1trader, I'm all for money, taking, running ... . :-)
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