THE WEEK AHEAD: IBM, SBUX, USO, OIH, XOP
(Pulling hair out). Ugh. A tough market temporarily for premium sellers. With VIX caving in dramatically off of its late December greater-than-35 highs, premium selling is the old gray mare that (temporarily) just ain't what it used to be.
That being said, there are a couple of potential earnings plays to be had next week: IBM (68/31; Tuesday after market close) and SBUX (67/27; Thursday after market close).
As you can see by the background implied volatility metrics, well, they ain't great, with IBM coming in at 31 and SBUX at 27. That being said, the February to March implied volatility contraction in IBM at the moment appears to be potentially from 32.7% to 26.6% (23% or so), and the SBUX from 25.7% to 23.5% (9.4%). From that standpoint, IBM appears to be the better volatility contraction play, since the market's pricing in a bigger contraction in the "Watson AI" company than in the omnipresent coffee purveyor. However, if you're going to play Watson, you're going to have to deal with goofy five-wides in the monthlies which, in itself, makes the play unappealing. Using the weeklies for a more surgical approach gets you fairly wide markets. Again, unappealing. (Scratches IBM off his list).
SBUX suffers from the same problem, but with two-and-a-half wides. I remember playing SBUX before, but don't recall having this two-and-half wide nonsense in the monthlies. (Scratches SBUX off his list, too).
On the exchange-traded fund front, some implied volatility juice appears to be concentrated in the petros -- USO, OIH, and XOP, where it pretty much is to a lesser or greater degree all the time. This is why I pretty much have some kind of trade on and running in XOP almost all the time. (See Post Below for my current XOP trade). This isn't necessarily the greatest place to start a relationship with this underlying (the implied volatility's at the low end of its 52-week range), but it's not paying horribly. Due to its relatively small size (31.60 at Friday close), I like to short straddle it -- the March 15th 32 short straddle is paying 2.92 at the mid with a 25% max take profit .73, which beats a poke in the eye with a sharp stick.
In light of the broad market volatility crush, this is just one of those weeks where I don't anticipate putting much on unless something dramatically changes or I stumble across something directional to play. Until then, I'll just sit on a bunch of dry powder, and it deploy it when the time comes.
That being said, there are a couple of potential earnings plays to be had next week: IBM (68/31; Tuesday after market close) and SBUX (67/27; Thursday after market close).
As you can see by the background implied volatility metrics, well, they ain't great, with IBM coming in at 31 and SBUX at 27. That being said, the February to March implied volatility contraction in IBM at the moment appears to be potentially from 32.7% to 26.6% (23% or so), and the SBUX from 25.7% to 23.5% (9.4%). From that standpoint, IBM appears to be the better volatility contraction play, since the market's pricing in a bigger contraction in the "Watson AI" company than in the omnipresent coffee purveyor. However, if you're going to play Watson, you're going to have to deal with goofy five-wides in the monthlies which, in itself, makes the play unappealing. Using the weeklies for a more surgical approach gets you fairly wide markets. Again, unappealing. (Scratches IBM off his list).
SBUX suffers from the same problem, but with two-and-a-half wides. I remember playing SBUX before, but don't recall having this two-and-half wide nonsense in the monthlies. (Scratches SBUX off his list, too).
On the exchange-traded fund front, some implied volatility juice appears to be concentrated in the petros -- USO, OIH, and XOP, where it pretty much is to a lesser or greater degree all the time. This is why I pretty much have some kind of trade on and running in XOP almost all the time. (See Post Below for my current XOP trade). This isn't necessarily the greatest place to start a relationship with this underlying (the implied volatility's at the low end of its 52-week range), but it's not paying horribly. Due to its relatively small size (31.60 at Friday close), I like to short straddle it -- the March 15th 32 short straddle is paying 2.92 at the mid with a 25% max take profit .73, which beats a poke in the eye with a sharp stick.
In light of the broad market volatility crush, this is just one of those weeks where I don't anticipate putting much on unless something dramatically changes or I stumble across something directional to play. Until then, I'll just sit on a bunch of dry powder, and it deploy it when the time comes.
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