THE WEEK AHEAD: HPQ, COST, XOP, OIH, EWZ, IWM
HPQ announces tomorrow after market close; COST on Thursday after market. Neither underlying's rank/implied vol metrics are particularly compelling, however, with the former's implied at 29.6%, the latter at 23.5%. Even so, the 68% probability of profit, ~20 delta COST June 15th 188/207.5 short strangle's paying 2.31; managed early (<50% max), that could make for a nice winner. The only thing that makes remote sense in HPQ is a short straddle, with the June 15th 22 paying a paltry 1.29; early management at 25% max would yield a .32 winner.
As far as non-earnings single name plays are concerned, here are the top five underlyings ranked by background implied volatility: TSLA (47.8%; rank 31.1%), P (47.5%; rank 1.4%), RIG (46.2%; rank 11.1%), X (43.2%; 19.9%), and TWTR (40.5%; 15.2%).
TSLA, with the highest background implied of the bunch, is paying out 9.38 for the 69% probability of profit July 20th 235/325 short strangle camped out at the 17 delta strikes, with its defined risk counterpart, the 225/235/325/335 paying 2.57 at the mid, with a less than ideal payout of less than one-third the width of the wings.
In the exchange-traded fund arena: XOP, OIH, and EWZ round out the top-implied volatility symbols, coming in at 34.8%, 31.8%, and 31.5%, respectively.
The XOP July 20th 37/45 short strangle is paying 1.24 with a probability of profit of 68% with break evens at 35.75/46.25; the 41 short straddle -- 3.97 with break evens at 37.03/44.97. With the short strangle, I'd be shooting for 50% max (.62); the short straddle, 25% max (.99).
The EWZ July 20th 37 short straddle* is paying 3.47 with break evens at 33.53/40.47; the corresponding iron fly with the longs camped out at ~10 delta -- the 31/37/37/43, pays 3.14 with risk one to make one metrics (max loss of 2.86 versus 3.14 credit received).
Lastly, a directional short idea in IWM, pictured on the chart. The setup is a Poor Man's Covered Call or "downside put diagonal." Here are the metrics: 7.23 debit, max loss on setup: 7.23, max profit on setup: 4.77/contract, break even on setup: 161.77, debit paid/spread width ratio: 60.25%. Max profit is realized on finish below the short at expiry, but I'd look to take profit early at 20% of what I put the trade on for (.2 x 7.23 = 1.44), rolling the short put out "as is" on significant decrease in value.
* -- My recent tendency has been to go with the short straddle/iron fly in underlyings <$50, bringing in more credit at the door and then proceeding to "manage early" (at 25% max).
As far as non-earnings single name plays are concerned, here are the top five underlyings ranked by background implied volatility: TSLA (47.8%; rank 31.1%), P (47.5%; rank 1.4%), RIG (46.2%; rank 11.1%), X (43.2%; 19.9%), and TWTR (40.5%; 15.2%).
TSLA, with the highest background implied of the bunch, is paying out 9.38 for the 69% probability of profit July 20th 235/325 short strangle camped out at the 17 delta strikes, with its defined risk counterpart, the 225/235/325/335 paying 2.57 at the mid, with a less than ideal payout of less than one-third the width of the wings.
In the exchange-traded fund arena: XOP, OIH, and EWZ round out the top-implied volatility symbols, coming in at 34.8%, 31.8%, and 31.5%, respectively.
The XOP July 20th 37/45 short strangle is paying 1.24 with a probability of profit of 68% with break evens at 35.75/46.25; the 41 short straddle -- 3.97 with break evens at 37.03/44.97. With the short strangle, I'd be shooting for 50% max (.62); the short straddle, 25% max (.99).
The EWZ July 20th 37 short straddle* is paying 3.47 with break evens at 33.53/40.47; the corresponding iron fly with the longs camped out at ~10 delta -- the 31/37/37/43, pays 3.14 with risk one to make one metrics (max loss of 2.86 versus 3.14 credit received).
Lastly, a directional short idea in IWM, pictured on the chart. The setup is a Poor Man's Covered Call or "downside put diagonal." Here are the metrics: 7.23 debit, max loss on setup: 7.23, max profit on setup: 4.77/contract, break even on setup: 161.77, debit paid/spread width ratio: 60.25%. Max profit is realized on finish below the short at expiry, but I'd look to take profit early at 20% of what I put the trade on for (.2 x 7.23 = 1.44), rolling the short put out "as is" on significant decrease in value.
* -- My recent tendency has been to go with the short straddle/iron fly in underlyings <$50, bringing in more credit at the door and then proceeding to "manage early" (at 25% max).
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