THE WEEK AHEAD: BBBY EARNINGS; XBI, GDX, IWM
EARNINGS:
BBBY (62/79) announces earnings on Wednesday after market close. Because of its size, I would go short straddle if of a nondirectional bent: the February 21st 16 is paying 3.18 at the mid (.80 at 25% max).
Pictured here, however, is a bullish assumption "Wheel of Fortune" at the money short put in the February cycle paying 1.55 (.78 at 50% max). Max is realized on a finish above the short put strike, with profitability being realized on anything above 14.45. From a trade management standpoint, I generally leave these alone until a test of the break even, at which point I sell delta cutting call against in anticipation of being assigned and then work it as a covered call from that point forward.
An alternative play: the February 21st 15 monied covered call, 13.92 debit (which is your cost basis in the shares and your break even). The max profit on this is less generous, coming in at the difference between what you paid to put the play on (13.92) and the short call strike at 15 or 1.08 max, but has a higher probability of profit metric.
EXCHANGE-TRADED FUNDS (SHOWING FIRST EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE PAYS GREATER THAN 10% OF THE UNDERLYING SHARE PRICE):
GLD (46/13), January '21
SLV (40/21), July
XBI (40/27), March
GDX (39/26), March
TLT (38/12), January '22
GDXJ (38/32), May
I would personally lean toward the funds paying in shortest duration, which would be either GDX or XBI, with the GDX March 20th 27/32 short strangle paying 1.18, .59 at 50% max, delta/theta -2.63/theta 1.58, and the XBI March 20th 82/105 short strangle paying 2.12, 1.06 at 50% max, delta/theta .65/3.82.
BROAD MARKET (SHOWING FIRST EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE PAYS GREATER THAN 10% OF THE UNDERLYING SHARE PRICE):
EEM (37/18), September
QQQ (20/17), September
IWM (15/16), August
SPY (3/13), September
Short duration obviously isn't paying and even August is a long time to wait for your candy (e.g., in IWM), where the IWM 145/183 short strangle is paying 4.77, delta/theta .58/2.60, where 10% max (.48) or 25% max (1.20) might be sufficiently compelling to put on a trade.
FUTURES:
/GC (46/13)
/SI (40/20)
/6C (38/6)
/NG (27/43)
/6A (32/8)
VIX/VIX DERIVATIVES:
VIX finished the week at 14.02 and term structure trades remain viable in the February, March, and April expiries, where the /VX futures contracts finished trading at 16.70, 16.87, and 17.32, respectively. For all other derivatives, I would continue to wait until VIX print >20 to go short (call me picky).
BBBY (62/79) announces earnings on Wednesday after market close. Because of its size, I would go short straddle if of a nondirectional bent: the February 21st 16 is paying 3.18 at the mid (.80 at 25% max).
Pictured here, however, is a bullish assumption "Wheel of Fortune" at the money short put in the February cycle paying 1.55 (.78 at 50% max). Max is realized on a finish above the short put strike, with profitability being realized on anything above 14.45. From a trade management standpoint, I generally leave these alone until a test of the break even, at which point I sell delta cutting call against in anticipation of being assigned and then work it as a covered call from that point forward.
An alternative play: the February 21st 15 monied covered call, 13.92 debit (which is your cost basis in the shares and your break even). The max profit on this is less generous, coming in at the difference between what you paid to put the play on (13.92) and the short call strike at 15 or 1.08 max, but has a higher probability of profit metric.
EXCHANGE-TRADED FUNDS (SHOWING FIRST EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE PAYS GREATER THAN 10% OF THE UNDERLYING SHARE PRICE):
GLD (46/13), January '21
SLV (40/21), July
XBI (40/27), March
GDX (39/26), March
TLT (38/12), January '22
GDXJ (38/32), May
I would personally lean toward the funds paying in shortest duration, which would be either GDX or XBI, with the GDX March 20th 27/32 short strangle paying 1.18, .59 at 50% max, delta/theta -2.63/theta 1.58, and the XBI March 20th 82/105 short strangle paying 2.12, 1.06 at 50% max, delta/theta .65/3.82.
BROAD MARKET (SHOWING FIRST EXPIRY IN WHICH THE AT-THE-MONEY SHORT STRADDLE PAYS GREATER THAN 10% OF THE UNDERLYING SHARE PRICE):
EEM (37/18), September
QQQ (20/17), September
IWM (15/16), August
SPY (3/13), September
Short duration obviously isn't paying and even August is a long time to wait for your candy (e.g., in IWM), where the IWM 145/183 short strangle is paying 4.77, delta/theta .58/2.60, where 10% max (.48) or 25% max (1.20) might be sufficiently compelling to put on a trade.
FUTURES:
/GC (46/13)
/SI (40/20)
/6C (38/6)
/NG (27/43)
/6A (32/8)
VIX/VIX DERIVATIVES:
VIX finished the week at 14.02 and term structure trades remain viable in the February, March, and April expiries, where the /VX futures contracts finished trading at 16.70, 16.87, and 17.32, respectively. For all other derivatives, I would continue to wait until VIX print >20 to go short (call me picky).
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