NaughtyPines

WEEK OF 11/20: HIGH IV IN PETRO UNDERLYINGS; NOT MUCH ELSEWHERE

AMEX:XOP   SPDR S&P OIL & GAS EXPLORATION & PRODUCTION ETF
After having gone through my usual routine of screening for high implied volatility rank/high implied volatility underlyings for plays this coming week, one thing stands out: the implied volatility is in petro, with stocks like CHK             , SDRL             , WFT             , PBR             and the like rounding out my top 10 IV list.* With OPEC talks approaching here, and "friskiness" in petro-based underlyings likely to ensue, I'm loathe to pile into more petro, particularly if it involves a bullish assumption. The "more likely than not" outcome is no meaningful OPEC agreement as to cuts, which means oil             down, which means further long opportunities below somewhere. If the contrarian outcome comes to pass (i.e., "meaningful cuts"), well, then I've just plain ass missed an opportunity to add long positions here and will have to make do with the bullish assumption positions I've got on here.

That being said, the "Top 10" list isn't entirely bereft of possibilities, depending on your risk tolerance and aversion to roller coasters.

For example, GPRO             may be worth a bullish assumption play here on the notion that Christmas sales of its drones will be "brisk," something we probably won't know unless GPRO             discloses its unit sales before its Q4 earnings announcement next year. The nearest to the 20-delta strike short put, 45 DTE             , however, is the Dec 30th 8.5, which would bring in .36 ($36)/contract at the mid -- not exactly something that gets me excited. Even assuming I wanted to go nondirectional (short strangle/straddle, iron condor/fly), I can't squeeze enough out of those setups premium wise to make it worthwhile.

VRX             is, well, VRX             . The Dec 30th 14.5 short put (currently the 19 delta) goes for .66 ($66) at the mid price. That isn't bad, but I have to put up with sitting on pins and needles for 5 weeks or more with that setup. The alternative would be to go with a defined risk setup (not keen on being caught undefined in a potential whipsaw). Even there, however, an iron condor won't pay out at least 1.00 in credit without forcing the wings in beyond the 1 SD             (I prefer more room with volatile biotech), and I'm not sure that I would want to go with the narrower breakevens of a fly, in spite of the fact that the credit I'd receive at the door would be more than sufficient. (A Dec 30th 13/18/18/23 iron fly would bring in 2.78, for example).

Well, what about AMD? That's in the list ... . Like its semicon counterpart, NVDA             , AMD's been on a rip and the place to have gotten in was lower for a bullish assumption play (scratches "short put" off his list). And nondirectional doesn't pay enough: the Dec 30th 8.5 short straddle would bring in a 1.44 credit at the mid (I like to get at least 2.00 out of those); the 7/10.5 short strangle, .40 at the mid. Defined risk (flies, condors) will bring in even less.

CLF? Same deal (can't get much out of the 45 DTE             20 delta short put; short straddle/strangle, iron condor/fly bring in too little premium).

Ugh.

Sometimes, these holiday weeks are best for hand sitting ... . Looks like this is going to be "par for the course."

* -- The top 10 implied volatility stocks (in descending order): CHK             , WFT             , VRX             , CLF             , AMD             , GPRO             , PBR             , RIG, VALE, CX             , UNG             .
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