THE WEEK AHEAD: NIO EARNINGS; XOP, EWZ PREMIUM SELLING
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.
The Chinese "Tesla killer" NIO (82/136) announces in two days and with a background implied clocking in at 136, who can resist putting something on. Pictured here is a fairly delta neutral 11 Short Straddle in the April expiry that is paying a whopping 4.18 at the mid (1.04 at 25% max) with break evens that encompass most of the underlying's whole data set -- 6.82 to 15.18. Even skewed to the call side, the net delta is -2.59 with a theta metric of 4.08.
Obvious alternative plays:
April 18th 7/11/11/15 iron fly: 3.10 at the mid, max loss of .90 versus max profit of 3.10 (.78 at 25% max), delta -.97, theta 1.43. I would note the rarity of the substantially better than risk one to make one metrics of this setup.
April 18th 7 short put, .72 at the mid with a downside break even of 6.28.
On the exchange-traded fund front, the vast majority of underlyings are at the very low end of their 52-week ranges, with the highest implied underlyings in XOP (16/30) and EWZ (10/30), which again militates in favor of not putting on a ton of nondirectional premium selling stuff here.
I did look at ASHR, which did stick out at 75/34, but the options chains in April, May, and July have wanky strikes (i.e., the April 28th 27.71 (WTF?) short straddle), and I don't like having to roll from "wanky" to an even Steven strike if I have to. If I'm going to play China, it's going to be in the more liquid FXI (16/21), which doesn't suffer from similar oddities that make trading it potentially harder than it has to be.
The Chinese "Tesla killer" NIO (82/136) announces in two days and with a background implied clocking in at 136, who can resist putting something on. Pictured here is a fairly delta neutral 11 Short Straddle in the April expiry that is paying a whopping 4.18 at the mid (1.04 at 25% max) with break evens that encompass most of the underlying's whole data set -- 6.82 to 15.18. Even skewed to the call side, the net delta is -2.59 with a theta metric of 4.08.
Obvious alternative plays:
April 18th 7/11/11/15 iron fly: 3.10 at the mid, max loss of .90 versus max profit of 3.10 (.78 at 25% max), delta -.97, theta 1.43. I would note the rarity of the substantially better than risk one to make one metrics of this setup.
April 18th 7 short put, .72 at the mid with a downside break even of 6.28.
On the exchange-traded fund front, the vast majority of underlyings are at the very low end of their 52-week ranges, with the highest implied underlyings in XOP (16/30) and EWZ (10/30), which again militates in favor of not putting on a ton of nondirectional premium selling stuff here.
I did look at ASHR, which did stick out at 75/34, but the options chains in April, May, and July have wanky strikes (i.e., the April 28th 27.71 (WTF?) short straddle), and I don't like having to roll from "wanky" to an even Steven strike if I have to. If I'm going to play China, it's going to be in the more liquid FXI (16/21), which doesn't suffer from similar oddities that make trading it potentially harder than it has to be.
Penafian
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