THE WEEK AHEAD: XOP/OIH/XLE, COST
Premium Selling
For the umpteenth week in a row, there is little in the market for high quality premium selling plays. Screening for 52-week >70 implied volatility rank, you'll basically get one quality hit at the moment, and that is COST, which has dipped significantly on AMZN/WFM merger news. A few names are approaching that 70 mark, but they have earnings three to four weeks out; you might as well wait to put on volatility contraction plays around earnings announcements in those cases. I previously set out a nondirectional play in COST (see Post below) that I didn't enter, having been distracted by something or other; I may reconsider that play now that the market's had an opportunity to digest the AMZN news.
Other names, such as NBR (petro, part of whose operations are deep water),* RAD (pharmacy in merger and acquisition with WBA), and BBRY (a kind of WTF, why are they still around) are too small in dollar value to be worth playing unless you dive in and go straight-on covered call or near-to-the-money short put.
Directionals
I've been waiting for several weeks to put on a bullish XOP, OIH, and XLE play. Each time I look at them, it appears that oil has trundled lower on rising rig count, total stock build, lackluster inventory draw, or a combination thereof.
I've been primarily watching oil prices around the supposed average shale production break even at $40 to go long in one of these underlyings. We may be close enough for me to make a play, but I'll probably continue watching. Lower is better for either a net credit put diagonal or a Poor Man's Covered Call in these guys.
Low Volatility Plays
With VIX continuing on its sub-12 bender, there probably isn't a better time to go put-side low volatility strategy in broad index underlyings (SPY, IWM, QQQ, DIA) using either calendars, net credit put diagonals, or debit diagonals. These capitalize on volatility expansion and movement of the underlying toward the put side, ideally allowing you to exit the short put aspect of the setup at worthless and recapture any value left in the long at the expiry of the front-month short. Heck, the dam has to break at some point ... .
* -- I regard most companies that rely substantially on deep water operations as largely doomed here. Most deep water operations require high per barrel prices that we haven't seen for a substantial period of time and aren't going to see in the short- to medium-term.
For the umpteenth week in a row, there is little in the market for high quality premium selling plays. Screening for 52-week >70 implied volatility rank, you'll basically get one quality hit at the moment, and that is COST, which has dipped significantly on AMZN/WFM merger news. A few names are approaching that 70 mark, but they have earnings three to four weeks out; you might as well wait to put on volatility contraction plays around earnings announcements in those cases. I previously set out a nondirectional play in COST (see Post below) that I didn't enter, having been distracted by something or other; I may reconsider that play now that the market's had an opportunity to digest the AMZN news.
Other names, such as NBR (petro, part of whose operations are deep water),* RAD (pharmacy in merger and acquisition with WBA), and BBRY (a kind of WTF, why are they still around) are too small in dollar value to be worth playing unless you dive in and go straight-on covered call or near-to-the-money short put.
Directionals
I've been waiting for several weeks to put on a bullish XOP, OIH, and XLE play. Each time I look at them, it appears that oil has trundled lower on rising rig count, total stock build, lackluster inventory draw, or a combination thereof.
I've been primarily watching oil prices around the supposed average shale production break even at $40 to go long in one of these underlyings. We may be close enough for me to make a play, but I'll probably continue watching. Lower is better for either a net credit put diagonal or a Poor Man's Covered Call in these guys.
Low Volatility Plays
With VIX continuing on its sub-12 bender, there probably isn't a better time to go put-side low volatility strategy in broad index underlyings (SPY, IWM, QQQ, DIA) using either calendars, net credit put diagonals, or debit diagonals. These capitalize on volatility expansion and movement of the underlying toward the put side, ideally allowing you to exit the short put aspect of the setup at worthless and recapture any value left in the long at the expiry of the front-month short. Heck, the dam has to break at some point ... .
* -- I regard most companies that rely substantially on deep water operations as largely doomed here. Most deep water operations require high per barrel prices that we haven't seen for a substantial period of time and aren't going to see in the short- to medium-term.
