IYR -- R/E SECTOR BLOODBATH HIGH VOLATILITY PLAY
With my broad index ETF (SPY, IWM, DIA, QQQ) queue kind of full, I've been looking at other high volatility plays to keep capital in play. One of the sector ETF's that has reappeared on my radar is IYR (iShares U.S. Real Estate ETF). With an IVR of 85, it is ripe for a premium selling play.
Traditionally, I look for a setup that is around 45 DTE, which would be the Oct 23rd weekly and look to either set up an iron condor or short strangle (depending on how much buying power I want to devote to the enterprise). Currently, however, strikes for the Oct 23rd expiry are somewhat unworkable for the setup I would like to see, so I am resorting to the Oct monthly expiry:
EXAMPLE:
Oct 16th IYR 59/62/75/78 Iron Condor
Max Profit/Buying Power Effect: .34 credit/contract; 2.66/contract
POP%-age: 70% (estimated)
Delta/Theta for Setup: 2.69/.71
Notes: As with all index setups, premium is thin to the call side, so you may want to consider greater aggressiveness there by moving your strikes on that side to slightly above the expected move, which is approximately between the 72 and 73 strike. This will result in your obtaining more credit for the setup, but it also puts the call side short of resistance at 76-ish. Naturally, this may be ill-advised with FOMC right around the corner; I could easily see that motivating movement in IYR due to its interest-rate sensitive nature (higher rates may possibly result in further weakness in the R/E sector).
Due to the amount of credit you would receive for this setup (which isn't stellar), it might be worthwhile to consider an Iron Fly (Oct 23rd expiry 62.5/68.5/68.5/74.5; 3.56 max profit; 2.44 BPE; 50% POP (estimated)), which you should consider taking off at 25% max profit or a Oct 23rd 62/75 short strangle (1.00 max profit; undefined BPE; 70% POP (estimated); take off at 50% max).
Traditionally, I look for a setup that is around 45 DTE, which would be the Oct 23rd weekly and look to either set up an iron condor or short strangle (depending on how much buying power I want to devote to the enterprise). Currently, however, strikes for the Oct 23rd expiry are somewhat unworkable for the setup I would like to see, so I am resorting to the Oct monthly expiry:
EXAMPLE:
Oct 16th IYR 59/62/75/78 Iron Condor
Max Profit/Buying Power Effect: .34 credit/contract; 2.66/contract
POP%-age: 70% (estimated)
Delta/Theta for Setup: 2.69/.71
Notes: As with all index setups, premium is thin to the call side, so you may want to consider greater aggressiveness there by moving your strikes on that side to slightly above the expected move, which is approximately between the 72 and 73 strike. This will result in your obtaining more credit for the setup, but it also puts the call side short of resistance at 76-ish. Naturally, this may be ill-advised with FOMC right around the corner; I could easily see that motivating movement in IYR due to its interest-rate sensitive nature (higher rates may possibly result in further weakness in the R/E sector).
Due to the amount of credit you would receive for this setup (which isn't stellar), it might be worthwhile to consider an Iron Fly (Oct 23rd expiry 62.5/68.5/68.5/74.5; 3.56 max profit; 2.44 BPE; 50% POP (estimated)), which you should consider taking off at 25% max profit or a Oct 23rd 62/75 short strangle (1.00 max profit; undefined BPE; 70% POP (estimated); take off at 50% max).