THE WEEK AHEAD: ADBE, COST EARNINGS; OIH, XOP, UNG DIRECTIONALS
Personally, I'm not doing a ton here beyond looking at cleaning up remaining December cycle setups and evaluating whether there are poo piles that should be looked at for the taking of tax loss in the margin account before year's end. Nevertheless, here's an outline of what's potentially playable in the coming week ... .
ADBE (81/49) announces earnings on Thursday the 13th after market close. The 20-delta, January 18th 210/270 short strangle is paying a whopping 8.05/contract at the mid price, with the 25-delta January 18th 215/220/265/270 paying greater than one-third the width of the wings at a mid price of 2.13. Markets are showing quite wide at the moment, particularly in the defined risk setup, however, so it may prove unattractive at New York open from a liquidity standpoint.
COST (76/31) also announces on Thursday after market close, but the background implied isn't generally what I'm looking for in an earnings-related volatility contraction play (generally, >50% is where I draw my "picky line").
On the exchange-traded fund front, petro leads the pack, with OIH rank/implied metrics coming in at 95/47, XOP at 79/44, and UNG at 72/86. With OPEC reaching an agreement late last week as to production cuts, I lean toward bullish assumption setups with time to work out/reduce cost basis, since it will take awhile for any cuts to appear in the pipeline. For example: an XOP June/Feb 25/34 upward call diagonal,* 6.55 debit/contract, break even at 31.55 versus 31.54 spot, max profit on setup of 2.45, 72.8% debit paid/spread width ratio. I'm already in a similar OIH bullish assumption setup, which is proving to be a "pulled the trigger" too soon type of thing. The back month in the OIH setup is in April, so I've still got time to reduce cost basis and for the trade to work out in some fashion, even though it's a bit of a rough sled here.
With UNG in particular, I continue to look at a bearish assumption seasonality play, but markets on any given setup have been ugly wide, no matter what type of setup I seem to look at, and lack of liquidity is not your friend when doing an options setup.
For broad market premium sellers: SPY (47/30), IWM (78/25), QQQ (69/27).
* -- Buy the June 25, sell the February 34.
ADBE (81/49) announces earnings on Thursday the 13th after market close. The 20-delta, January 18th 210/270 short strangle is paying a whopping 8.05/contract at the mid price, with the 25-delta January 18th 215/220/265/270 paying greater than one-third the width of the wings at a mid price of 2.13. Markets are showing quite wide at the moment, particularly in the defined risk setup, however, so it may prove unattractive at New York open from a liquidity standpoint.
COST (76/31) also announces on Thursday after market close, but the background implied isn't generally what I'm looking for in an earnings-related volatility contraction play (generally, >50% is where I draw my "picky line").
On the exchange-traded fund front, petro leads the pack, with OIH rank/implied metrics coming in at 95/47, XOP at 79/44, and UNG at 72/86. With OPEC reaching an agreement late last week as to production cuts, I lean toward bullish assumption setups with time to work out/reduce cost basis, since it will take awhile for any cuts to appear in the pipeline. For example: an XOP June/Feb 25/34 upward call diagonal,* 6.55 debit/contract, break even at 31.55 versus 31.54 spot, max profit on setup of 2.45, 72.8% debit paid/spread width ratio. I'm already in a similar OIH bullish assumption setup, which is proving to be a "pulled the trigger" too soon type of thing. The back month in the OIH setup is in April, so I've still got time to reduce cost basis and for the trade to work out in some fashion, even though it's a bit of a rough sled here.
With UNG in particular, I continue to look at a bearish assumption seasonality play, but markets on any given setup have been ugly wide, no matter what type of setup I seem to look at, and lack of liquidity is not your friend when doing an options setup.
For broad market premium sellers: SPY (47/30), IWM (78/25), QQQ (69/27).
* -- Buy the June 25, sell the February 34.