About meFocusing on IVR (Implied Volatility Rank), I look to sell premium, focusing primarily on indices (SPY/DIA/IWM) and treasuries (TLT/TBT) using short vertical spreads, iron condors, and short strangles.
... for a 1.09/contract credit.
Another premium selling play, small, defined in the semicon exchange-traded fund with implied volatility at nearly twice that of the broad market ... . Collecting slightly greater than one-third the width of the wings. Will look to take profit at 50% max. The naked 110/126 short strangle in the June cycle is currently paying...
... for a 1.04/contract credit.
With implied volatility fairly low across the board, going small, defined in the exchange-traded fund with the highest background implied volatility on the board (30.9%) to keep powder dry for something sexier to come along ... . Shorts nearest the 25 delta strike, longs nearest the 10 with slightly more than one-third the width...
TWTR (41/54) announces earnings on Tuesday before market open; pictured here is a May 17th 30/39 short strangle.
Max Loss/Buying Power Effect: Undefined/3.50/contract
Max Profit: 1.09
Break Evens: 28.91/40.09
Front Week to May Opex Volatility Differential: 41.5%
Notes: Look to put a play on in the waning hours of the Monday...
NFLX and IBM both announce on Tuesday after market close, so look to put on something in the waning hours of Monday's session if you're going to do a volatility contraction play.
Pictured here is a NFLX (42/46) 25/10 iron condor,* with the short option strikes at the 25 delta; the longs at the 10 (as of Friday close). Metrics: $825 max profit; $1675...
... for a 2.57/contract credit (cost basis of 212.43/share).
Notes: Here, I'm looking to acquire additional SPY shares, but only at a potential 25% discount from current price. Otherwise, I want to get paid to wait and/or reduce cost basis in the meantime. Because expiries are skip month (March, June, September, December, etc.), will look to roll out for...
... for a 1.13/contract credit.
Max Loss/Buying Power Effect: Undefined/$270/contract
Max Profit: $113
Break Evens: 20.87/33.13
Notes: Earnings in 22, so not looking to stay in this trade for long. High implied at 66 with excellent options liquidity ... .
Trade of the Week (May Cycle):
Pictured here is an EWZ (29/34) May 17th 37/45 short strangle: 1.14 credit, .57 at 50% max, break evens at 35.86/46.14, delta -1.46, theta 2.87.
Obvious Alternatives: EWZ May 17th 41 short straddle, 3.91 credit, .98 at 25% max, break evens at 37.09/44.91, delta -4.6, theta 4.01.
Notes: Pros: High implied, high implied relative to...
... for a 1.10/contract credit.
Max Loss/Buying Power Effect: Full notional
Max Profit: $110/contract
Break Even on Setup: 123.90 (18.4% discount over where the underlying is currently trading if assigned)
Delta: 10.93 (Current)
Theta: 1.36 (Current)
Notes: While I'm sitting on my hands a bit here, I figured I post one of my kid's "Not A Penny More"...
Although VIX finished the week above the low volatility environment zone (<15) at 16.48, not much is enticing here from a premium selling standpoint at first glance. Earnings announcements are now down to a trickle, with the next quarter's announcements coming into range in the May cycle, militating in favor of putting on earnings-related volatility contraction...
... for a 1.67/contract credit.
Max Profit: 1.67 ($167)
Max Loss/Buying Power Effect: 3.33 ($333)
Break Evens: 83.33/99.67
Notes: Some nondirectional premium selling here in an exchange-traded fund with high implied (24.8%) relative to the broad market; going 25 delta with the shorts, five-wide with the longs and collecting...
... for a 1.03 credit/contract.
Max Profit: $103
Max Loss/Buying Power Effect: Undefined/~3.85
Break Evens: 26.97/34.03
Notes: Going directionally neutral short strangle here with 30-day implied more than twice that of the broad market and giving myself a little room to manage intratrade. Will look to take profit at 50% max (.51).
Three earnings announcements interest me this coming week from a volatility contraction standpoint: TLRY (--/79),* announcing on Monday after market close; MU (45/51) -- Wednesday after market close, and CAG (86/45), Thursday, before market open.
CAG: Pictured here is a CAG April 18th 22/24/25 Jade Lizard, which was 1.03 at the mid as of Friday close, giving it a...
... for an .89/contract credit.
Max Profit: $289/contract
Max Loss: $111/contract
Break Even: 282.89 (no downside risk)
Notes: Taking a small directional shot at/near horizontal resistance with a risk 1 to make greater than 2 setup ... . Will start to look to take profit at 25% max (.73/$73).
... for a 1.08/contract debit.
Adding a rung (lower rung at April/June 120; see Post Below) in low implied volatility (9.04%).
I'm not looking to squeeze much out of these (25% max), but they're good, low cost plays with decent return on capital for what you're putting up.
Generally speaking, the worst thing to do in a fairly low volatility environment is to put premium selling plays on just to have plays on. My general approach to these volatility lulls is to look at them as an opportunity to work what broken trades you may have on at the moment (e.g., inverted short strangles) in an attempt to dry powder out for the next pulse of...
My screeners aren't showing me a ton of things for either earnings-related volatility contraction plays and/or just Plain Jane premium selling, so I'm largely looking just to work what I have on, do any adjustments that are necessary, and wait for a higher volatility environment (VIX is at sub-15 here) to deploy capital back into premium selling.
... for a .99/contract credit.
Max Profit: $99/contract
Max Loss/Buying Power Effect: Undefined/~$320/contract (on margin)
Break Evens: 27.01/36.99
Notes: Still has some fairly high implied volatility in it post-earnings. Going with a high probability of profit short strangle with strikes wide of the expected move and greater...