EARNINGS:
HD (24/21) (Tuesday Before Market)
LOW (68/35) (Wednesday Before Market)
TGT (66/37) (Wednesday Before Market)
GPS (60/53) (Thursday After Market)
M (97/67) (Thursday Before Market)
Pictured here is an M short straddle at the 17 strike in the December cycle, paying 2.73 with 14/72/19.73 break evens, and delta/theta metrics of -4.49/3.77. Look to put on a play on Wednesday before the end of the New York session.
In second place for ideal volatility contraction metrics is GPS (60/53). As with M, I would short straddle here, with the December 20th 18 paying 2.22 with 15/78/20.22 break evens, and delta/theta metrics of 1.29/3.06.
EXCHANGE-TRADED FUNDS:
TLT (42/12)
EEM (40/17)
SLV (29/20)
EWZ (26/27)
FXI (26/19)
... with the first expiry in which the at-the-money short straddle pays more than 10% of the value of the underlying: TLT, January '21; EEM, June; SLV, July; EWZ, March; and FXI, May. Both the rank/implied metrics, as well as the short straddle value metric indicate that it's probably a good time to hand sit on selling shorter duration premium here.
BROAD MARKET:
With VIX finishing the week at 12.05, volatility is at or near 52 week lows here in all the majors: SPY's in the 6th percentile; IWM in the 4th; and QQQ at 0.
The first expiry in which the at-the money short straddle pays greater than 10% of the value of the underlying: SPY, Sept; IWM, June; and QQQ, June. Both the rank/implied metrics, as well as the short straddle value metric indicate that it's probably a good time to hand sit on selling shorter duration premium here.
FUTURES:
/6B (63/11)
/NG (40/59)
/ZS (30/20)
/SI (29/19)
/CL (24/33)
As I may have mentioned last week, it's no surprise that /NG volatility is frisking up here. Generally, I play natty for seasonality, so look to get in with something bullish assumption at seasonal lows/peak injection, bail out of the long delta position in January or February depending on how Mother Nature feels, and then look to ride the elevator down in the opposite direction with a short delta position. I'm not keen on selling nondirectional premium (e.g., iron condors), particularly given what natty did last winter, so am sticking with my traditional, no-nonsense seasonality play.
Another item of note: GVX (gold volatility) has dropped substantially here, finishing the week at 11.22, in the 23rd percentile for the year ... .
VIX/VIX DERIVATIVES:
As previously mentioned, VIX closed the week at near 2019 lows (12.05), with the December, January, and February /VX contracts trading at 15.09, 16.60, and 17.50, respectively. Consequently, VIX term structure trades are still viable in the January and February expiries, but would probably beg off a December setup in the absence of a pop that runs that contract up to >16; the 16 strike is generally the lowest I will go with the short option leg of a VIX term structure trade.
As far as derivatives are concerned, this definitely isn't the place to be adding shorts. While it may be that VIX hangs out at these levels for a lengthy period of time, shorts are most productive on VIX pops -- not at VIX lows, even if contango and beta slippage are really working in shorts' favor here. As we all know, both the current steep contango and low VIX levels can evaporate in a heartbeat. If anything, this may be one of the rare occasions to consider a small bullish assumption trade (e.g., a VXX December 20th 15/17/17/19 "Super Bull,"* paying a .20 credit, with max profit/loss metrics of 2.20/1.80 and a break even of 16.80 versus the 17.40 where VXX is currently trading).
* -- A 15/17 short put vertical combined with a 17/19 long call vertical.
HD (24/21) (Tuesday Before Market)
LOW (68/35) (Wednesday Before Market)
TGT (66/37) (Wednesday Before Market)
GPS (60/53) (Thursday After Market)
M (97/67) (Thursday Before Market)
Pictured here is an M short straddle at the 17 strike in the December cycle, paying 2.73 with 14/72/19.73 break evens, and delta/theta metrics of -4.49/3.77. Look to put on a play on Wednesday before the end of the New York session.
In second place for ideal volatility contraction metrics is GPS (60/53). As with M, I would short straddle here, with the December 20th 18 paying 2.22 with 15/78/20.22 break evens, and delta/theta metrics of 1.29/3.06.
EXCHANGE-TRADED FUNDS:
TLT (42/12)
EEM (40/17)
SLV (29/20)
EWZ (26/27)
FXI (26/19)
... with the first expiry in which the at-the-money short straddle pays more than 10% of the value of the underlying: TLT, January '21; EEM, June; SLV, July; EWZ, March; and FXI, May. Both the rank/implied metrics, as well as the short straddle value metric indicate that it's probably a good time to hand sit on selling shorter duration premium here.
BROAD MARKET:
With VIX finishing the week at 12.05, volatility is at or near 52 week lows here in all the majors: SPY's in the 6th percentile; IWM in the 4th; and QQQ at 0.
The first expiry in which the at-the money short straddle pays greater than 10% of the value of the underlying: SPY, Sept; IWM, June; and QQQ, June. Both the rank/implied metrics, as well as the short straddle value metric indicate that it's probably a good time to hand sit on selling shorter duration premium here.
FUTURES:
/6B (63/11)
/NG (40/59)
/ZS (30/20)
/SI (29/19)
/CL (24/33)
As I may have mentioned last week, it's no surprise that /NG volatility is frisking up here. Generally, I play natty for seasonality, so look to get in with something bullish assumption at seasonal lows/peak injection, bail out of the long delta position in January or February depending on how Mother Nature feels, and then look to ride the elevator down in the opposite direction with a short delta position. I'm not keen on selling nondirectional premium (e.g., iron condors), particularly given what natty did last winter, so am sticking with my traditional, no-nonsense seasonality play.
Another item of note: GVX (gold volatility) has dropped substantially here, finishing the week at 11.22, in the 23rd percentile for the year ... .
VIX/VIX DERIVATIVES:
As previously mentioned, VIX closed the week at near 2019 lows (12.05), with the December, January, and February /VX contracts trading at 15.09, 16.60, and 17.50, respectively. Consequently, VIX term structure trades are still viable in the January and February expiries, but would probably beg off a December setup in the absence of a pop that runs that contract up to >16; the 16 strike is generally the lowest I will go with the short option leg of a VIX term structure trade.
As far as derivatives are concerned, this definitely isn't the place to be adding shorts. While it may be that VIX hangs out at these levels for a lengthy period of time, shorts are most productive on VIX pops -- not at VIX lows, even if contango and beta slippage are really working in shorts' favor here. As we all know, both the current steep contango and low VIX levels can evaporate in a heartbeat. If anything, this may be one of the rare occasions to consider a small bullish assumption trade (e.g., a VXX December 20th 15/17/17/19 "Super Bull,"* paying a .20 credit, with max profit/loss metrics of 2.20/1.80 and a break even of 16.80 versus the 17.40 where VXX is currently trading).
* -- A 15/17 short put vertical combined with a 17/19 long call vertical.