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FXI

TRADE IDEA: FXI AUG/OCT 41/36 "SCAREDY CAT" MONIED CALL DIAGONALOn occasion, I like to take small directional shots without hanging myself too far out there from a buying power perspective because I lack directional conviction or (more often), I'm working a small account where going full on covered call just isn't an option due to buying power effect. FXI has come quite far off off highs and doesn't appear hugely inclined to stop falling, at least in the short term. Naturally, trade war fears could quickly evaporate, and it could rip back up; alternatively, they may escalate, prompting a further sell-off. There are various ways to play my indecision, one of which would be to short straddle and/or strangle the underlying, but the background implied volatility isn't all that great here at 26.9%, so it isn't all that sexy as a pure premium selling play, so I have to think of something else. One option would be to short put at the 30 delta 40 strike (the Aug 17th's paying .64 with a break even of 39.36), but that's going to cost me roughly 20% of the short put strike (on margin) in buying power and/or invoke full notional value if cash secured. Alternatively, I can just money the covered out of the box by selling the Aug 17th 40 monied covered call (35.97 per one lot; 35.97 break even; 4.03 max profit on call away). Naturally, that's going to hang up 35.97 in buying power, even though the pure dollar and cents payout on call away is quite attractive (11.2% ROC). If you don't want to go that big buying power wise, but potentially realize a similar ROC percentage metric (~10%), there's the "scaredy cat," monied call diagonal with the buying power effect of less than 15% of the full-on covered call ... . Metrics: Max Loss on Setup: $455/contract Max Profit on Setup: $45/contract (9.9% ROC) Break Even: 40.55 vs. 42.08 spot Delta: 22.36 Theta: .86 Notes: As always, there's a downside to these. Realizing max profit with a monied generally requires that you wait toward the very end of the front month expiry for all the extrinsic to bleed out of the short, and you can't just "let it lay" as you would potentially with a covered call. Instead, shoot for taking off the whole setup toward expiry (assuming that the short call remains monied) at .05 short of max or consider rolling out the short call "as is" around 4-10 days until expiration for additional credit if you want to milk/reduce cost basis in the setup further.
AMEX:FXILong
by NaughtyPines
THE WEEK AHEAD: XLU, XRT, EEM, FXI DIRECTIONALS, EWZ PREMIUMWith volatility at somewhat of an ebb here, I'm eyeing exchange-traded funds for directional plays in lieu of just hand sitting. The setup pictured here is of a XLU diagonal with the long dated option out in Dec, the front month in August. I would prefer setting this up as a skip month (Aug/Oct), but an Oct expiry isn't available yet. Here are the metrics: 5.43/contract debit, max profit on setup 1.57/contract, break even at 49.43 vs. 49.54 spot, debit paid/spread width ratio 77.6%. The debit paid/spread width ratio is a little higher than I'd ordinarily like (<75% is ideal), but it's also longer-dated, so I've got extra time to reduce cost basis if I need to. I'd look to take profit at 20% of what I put it on for (1.09) rather than going for max, which assumes a finish above the short call strike. A possible variation is to buy the Dec 44 and sell the Aug 50: 5.04 db/contract, max profit on setup .96/contract, break even at 49.04, debit paid/spread width ratio 84%. The variation lowers your break even by a half strike, thus giving you a smidge more of downside pro, but also lowers your profit potential, although you can certainly roll out any in the money short call to bring in additional credit should you want to go for greater than what the max was on setup. Other candidates for this sort of setup include: XRT (within 5% of its 52 week high; downside put diagonal), EEM (upside call diagonal; at long-term support), FXI (upside call diagonal; at long-term support). The basic setup for these is to sell the front month 30-delta strike and then buy a back month long such that your break even is slightly below where it's trading (in the case of upside call diagonals; you want the break even above spot with downside put diagonals) without paying more than 75% of the width of your spread. The one exchange traded fund that still has some juice in it is EWZ, with a background implied of around 34%. Although it's a little early to cycle into August (61 days until expiry), the Aug 17th 29/37 short strangle is paying .90/contract. Given the way it's imploded, however (it's near its 52-week low), I could also see taking a bullish directional shot here, too: the Aug/Dec 28/35 upside call diagonal costs 4.88 to put on, has a max profit of 2.12 on setup, a break even of 32.88 vs. 33.04 versus spot, and a debit paid/spread width ratio of 69.7%.
AMEX:XLU
by NaughtyPines
1
SHINA FXI YINN YANGTaking a look at FXI this time. The index has been consolidating for quite some time. There are a few folks calling the FXI has broken out of a falling wedge. I say look again and apply the trend line of the lows to the high and you can clearly see it is still stuck inside a downtrend channel. The x3 leverage index YINN and YANG are also helpful to glance at how bullish/bearish cycle compares (represented in Green and Red line respectively, with appropriate resistance/supports), directly above the FXI. YANG (x3 bear) has been building higher lows while conversely, YINN (x3 bull) has been building lower highs. Until the bulls manage to break out above the trend channel and close above it, I will still remain cautiously bearish.
AMEX:FXIShort
by showmethat
THE WEEK AHEAD: TGT, ANF, COST, XOP, OIH, FXIA trio of retail names, TGT, ANF, and COST announce next week ... . TGT announces on 3/6 before market open. Preliminarily, the March 16th, 11-day, 20-delta 69.5/81 short strangle pays 1.54 at the mid, with its defined risk counterpart, the 66.5/69/81/84 iron condor paying under 1/3rd the width of the wings at .83/contract, slightly shy of the credit I like to receive on those to pull the trigger. For those into the short put/acquire/cover cycle type trade (I'm going to refer to these as "spack" trades for short):* the 30 delta, March 16th 71.5 short put is paying 1.37 at the mid, which would yield a cost basis of 70.13 of any assigned shares, a discount of 6.7% over where the underlying is currently trading. ANF announces on 3/7 before market open. Given the size of the underlying, I'd probably go short straddle, with the March 16th 21 paying 3.22 at the door and its defined risk iron fly variation -- the 17/21/21/25 paying 2.56, slightly greater than 1/4 the width of the long strangle component of the setup, which is what I want to see at the least out of an iron fly. The "spack" trade: the March 16th, 30 delta 19 short put is paying .91/contract, yielding a cost basis of 18.09 in any assigned shares versus 20.68 market, a 12.5% discount. Lastly, COST announces on the 7th, after market close. The March 16th 177.5/200 short strangle is paying 2.40, with the defined risk 172.5/177.5/200/205 paying 1.21, somewhat short of 1/3rd the width of the wings. The spack trade is to sell the March 16th 182.5 for 2.31/contract which would result in a cost basis of 180.19 in assigned shares -- a 4.8% discount over where shares are currently trading. Sector-wise, the volatility remains in a familiar place, with XOP/OIH having the highest (34%). FXI (29%), XRT (27%), and XHB (26%) follow in descending order, with background implied a bit on the light side (I like >35% to bother). Depending on your thoughts about where petro is heading: The XOP April 20th 31/37 short strangle is paying 1.01 at the mid (neutral assumption); the April 20th 32 short put (bullish assumption) is paying .74 with a resulting cost basis of 31.26 (an 8.4% discount over current share price); and the Plain Jane slightly monied April 20th 34 covered call (buy shares at 34.14, sell the April 20th 34 short call) costs 32.50 to put on (a 4.8% discount over current price) (selling the April 20th 34 short put for 1.47 yields basically the same metrics). The FXI April 20th 44/51 short strangle is paying 1.41 at the mid, with the spack trade being to sell the April 20th 45 put for a .94 credit, resulting in a cost basis of 44.06 per share, a 6.8% discount over where the underlying is currently trading. * -- Generally speaking, the cycle is to: (a) Sell puts. At expiry, if price is above your strike, you keep the premium. (b) If at expiry, price is below your strike, either allow yourself to be assigned, or roll the short put out "as is" for credit and therefore further cost basis reduction. (c) On assignment, proceed to cover your shares by selling calls against at or above your cost basis in the shares, looking to exit the trade profitably.
NYSE:TGT
by NaughtyPines
THE WEEK AHEAD: EARNINGS APLENTY (PLUS THAT LITTLE SHUT-DOWN)Earnings season is in full swing, with a bevvy of announcements: NFLX: announces on Monday after market close, with a rank of 79 and a background of 44. VZ: Tuesday, before market open -- rank 80/background 25. PG: Tuesday, before market open -- rank 86/background 17. GE: Wednesday, before market open -- rank 100/background 39. CAT: Thursday, before market open -- rank 84/background 30. CELG: Thursday, before market open -- rank 78/background 36. UNP: Thursday, before market open -- rank 78/background 30. INTC: Thursday, after market close -- rank 97/background 31. SBUX: Thursday, after market close -- rank 90/background 26. ABBV: Friday, before market open -- rank 78/background 26. At the moment, none of these precisely meet my criteria for a play (rank >70; background >50), but NFLX is fairly close and may frisk up during the regular session. Preliminarily, the Jan 26th (5 days 'til expiry) 205/240 is paying 4.66 at the door with break evens wide of the expected. A defined risk setup with the same strikes -- the 200/205/240/245 iron condor pays 1.72, with a max loss of 3.28 and break evens of 203.28 and 241.72 -- basically right at the expected move on both sides. On the exchange-traded funds front, the top three funds ranked by implied volatility rank or percentile are: FXI (75/22), XLB (79/16), and XLU (86/17). As with earnings, these don't meet my criteria for a play (rank >70; back ground >35), but it's always worth knowing what is potentially on the move or might set up for a play given the right conditions. With volatility products, I'm basically hand-sitting here (there was no weekly expiry to take advantage of last week). I added a few spreads on that pop and don't want to go overboard in the event that there is further market unrest in connection with the government shut-down. Although the VXST/VIX ratio has trundled down to below 1.00, it still remains fairly high at .924 and VVIX is still >100 (101.59). Instead, I'm looking to scratch out the most at-risk spreads I have on (VXX 25.5/28.5's, generally) if I get an opportunity to do so, since that uptick got me in at better strikes ... .
NASDAQ:NFLX
by NaughtyPines
Inflation, China and Emerging MarketsIn higher inflation environments, money flows typically begin to head into emerging markets. This is primarily due to the fact that many of them are commodity producers. When looking at capital flows into EM-nations and real treasury term premia, it is this capital flow which is partly responsible for driving up interest rates. When taking this into account, it is expected that continued flow into emerging markets will keep interest rates elevated. However, there is an increasing relationship into capital flows into emerging markets and China’s monetary policy, which to say the least is non-consistent. We believe the late-cycle inflation in the U.S., plus the likely even that China could face another liquidity crunch, the outlook on EEM is neutral. Although, price momentum is strong the rapidly declining volume is a key signal that a bull trap could be in place. Key risk ranges available on chart.
AMEX:EEM
by MacroView_TrendFlex