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Ironfly

X EARNINGS SHORT STRANGLE/IRON FLYX announces earnings tomorrow (Tuesday) after market close, and with its implied volatility rank and implied volatility metrics, it's ripe for a volatility contraction play. Here are two possible setups, which naturally might need to be tweaked this way or that depending on price movement intraday tomorrow. Feb 17th 29/38 Short Strangle Metrics Probability of Profit: 68% Max Profit: $130/contract Buying Power Effect/Max Loss: Broker Dependent/Undefined Break Evens: 27.70/39.30 Notes: (1) Here, as is my habit, I'm selling the 20 delta call and put. (2) I went out a little bit farther in time to the monthly, since things are generally more liquid there, so I would be more likely to get a fill at the mid without too much diddling around. (3) Look to manage at 50% max profit or about $65/contract. Feb 17th 25.5/33/33/41 Iron Fly Metrics: Probability of Profit: 50% Max Profit: $392/contract Max Loss/Buying Power Effect: $408/contract Break Evens: 29.08/36.92 Notes: (1) The first thing I did was check to see what a three-wide iron condor would pay with the short options at the 20 delta strikes. It was less than 1/3rd the width of the strikes, so I switched to putzing with a fly. (2) Look to manage this setup at 25% max profit (~$98/contract). (3) While the setup looks "sexier" from a max profit standpoint, you'll also notice that the profit zone is narrower than that of the short strangle. Nevertheless, is defined risk going in, so I know what my max loss is if the thing blows up in my face.
NYSE:X
by NaughtyPines
3
TRADE IDEA: GDXJ FEB 17TH 30/36/37/45 IRON CONDOR/FLYThere isn't much non-earnings stuff out there that has both high implied volatility rank and high implied volatility. This is one of them. Here I'm going with an extremely narrow iron condor, such that it's almost an iron fly ... . Metrics: Max Profit: $338/contract Max Loss/Buying Power Effect: $462/contract Break Evens: 32.62/40.38 Notes: I'm going to treat this as a fly for purposes of take profit and look to get 25% max.
AMEX:GDXJ
by NaughtyPines
OPTION TIP: IRON FLY INTRATRADE DEFENSEPosted here is a live trade example of a LULU iron fly. I started this out as an earnings trade iron condor, looking for classic volatility contraction post-announcement. I got the contraction I wanted, but not the movement, as price immediately broke the short call side of my setup, after which I rolled to an iron fly. (See Post Below). A week after earnings, price has dipped, skewing the net delta of the setup long.* Currently, the net delta of the setup is 24.92, with the respective strikes having the following delta/dollar values: 57.5 Long Put -11.05 delta/46.50 70 Short Put 65.10 delta/522.50 70 Short Call -34.92/170.00 80 Long Call 16.14/19.50 What, if anything, should I do to "defend" the short put side of the setup? Here are my options, with pros and cons for each: 1. Do nothing. There is, after all, plenty of time** until expiry and "fiddling" with the setup here may unnecessarily complicate exiting the trade and potentially increase risk if I choose, for example, to erect a defensive hedge or roll the short call side down toward current price. Additionally, the setup isn't "hugely" out of skew yet and price remains above my break even for the short put side of the setup. 2. Roll the short call or short call side toward current price in the same expiry. This would add short delta to the setup. Personally, the only time I want to take a straddle and roll into an "inverted strangle" is when the short option is approaching worthless and basically providing little to no protection to the oppositional side. That isn't the case here yet: the short call is at the 35 delta or so and is still worth $170.00. 3. Erect a defensive hedge. In this particular case, the setup is net delta long, so I would look to add short delta to the setup, either with a naked short call or a short call vertical. Generally speaking, I like to erect hedges that are, in themselves, high probability setups, so in all likelihood I would sell the 20 delta short call or as close as I can get to it or erect a short call vert with the short leg at the 20 delta strike, and the long leg above it. The Jan 20th 72.5 short call is worth 24 short delta, so that would just about do the trick to get the setup back to almost completely delta neutral. Alternatively, the 72.5/77.5 would add in -14 delta and bring in .70 in credit to boot. Unfortunately, this adds risk to the setup, namely that price will retrace to the call side, thus amplifying short delta, because I would now basically have two short delta or bearish spreads on (the 72.5/77.5 and the 70/80). * * * My basic approach is to stay mechanical. If the untested side isn't approaching worthless, simply leave the setup alone, as temporarily painful as that may be. One side or the other of an iron fly, after all, is being constantly tested, as there is practically no way that price will stay at your short straddle for any length of time. Only when the untested side is approaching worthless do I look at what can be done, with my first preference being to roll the untested side toward current price. This results in a "goofy" setup (an inverted short strangle), but it also means that I'm not taking on additional risk as I would with a hedge. If rolling the untested side would simply be unproductive (there is too little time to expiry to get anything for the roll, for example), I then look at a purely defensive hedge either in the setup's current expiry (again, if that is productive credit-wise) or, if necessary, further out in time. * -- As price moves toward the put side of the setup, delta "lengthens" or becomes more net positive; as it moves to the call side, it "shortens" or becomes more net negative. ** -- "Plenty of time" is somewhat subjective here and will depend on what's happening with the setup.
NASDAQ:LULU
by NaughtyPines
ROLLING: IWM DEC 16TH 116/119/121/124 IRON CONDOR ... ... to JAN 20TH 119/122/125 iron fly for a .01 net credit. With the short put side of the Dec 16th iron condor nearing worthless and rolling intra-expiry to a fly not particularly productive, I'm rolling this out to the Jan expiry, improving the call side a strike and rolling the put side into a fly, "keeping the dream alive." Rolling is never fun, but it's the nature of the beast if you do not want to just take the loss and walk away. This is one that will probably have to be worked a couple of cycles to get to scratch ... . IWM/RUT has just ripped brutally to the upside ... .
AMEX:IWM
by NaughtyPines
ROLLING: XLU DEC 2ND 45/48.5 SHORT PUT VERT TO DEC 23RDAfter I pulled off the short call of the Dec 2nd iron fly at near worthless today, I rolled the short put side out to the Dec 23rd expiry to give it a little more time to work out, as well to be able to work the call side of the setup effectively. (I have a setup in the Dec 30th expiry already, so didn't want to roll there; Jan was too far out in time for my tastes). I did the roll for a .05 ($5)/contract debit. Shortly thereafter, I sold a call side against -- the 48/51.50 short call vert short here -- for a .23 ($23)/contract credit, so I'm net credit for the roll. (I could not get enough credit out of the 48.5/52 to bother with, so dropped the spread down a half strike. The resulting setup is pictured here. Ideally, I need price to move back toward the "body" of the setup to get out for scratch or better. If that doesn't happen, I'll naturally take the call side off at near worthless, and then "lather, rinse, repeat" with the rolling/selling an oppositional side against.
AMEX:XLU
by NaughtyPines
OPENING: IYR JAN 20TH 70/75/75/79 IRON FLY... for a 2.79 credit. Here, I'm looking to add to core exchange-traded fund fly positions in underlyings whose implied volatility is high relative to where it's been over the preceding six months (>70th percentile) There aren't many out there at the moment, and this is one of them. Notes: Unfortunately, I forgot to write down the metrics for this fella while I was placing the trade. I'll look to manage it at 25% max, as I do with all flies and short straddles.
AMEX:IYR
by NaughtyPines
2
TRADE IDEA: XBI JAN 20TH 53.33/61.67/70 IRON FLYRotating into exchange-traded funds here ... . EWZ and XBI appear to have the best implied volatility rank/implied volatility percentage metrics. I already have an EWZ fly on, so XBI it is ... . Metrics: Probability of Profit: 44% Max Profit: 5.29 ($529)/contract Max Loss: 3.00 ($300)/contract Break Evens: 56.38/66.96 Notes: I'm going to shoot for a fill that is .05 about the mid price of 5.29. If it fills, it fills; no worries. Will look to manage at 25% of max profit as I do with all short straddles/iron flies.
AMEX:XBI
by NaughtyPines
WEEK OF 12/5: WHAT I'M LOOKING AT: XBI AND EWZWith the VIX still hovering in sub-15 territory and an examination of broad index exchange-traded funds therefore yielding less premium than I would like,* I'm turning my attention to sector exchange traded funds for possible premium selling plays. Naturally, VIX levels could change in light of the outcome of the Italian referendum (as of the writing of this, Dec 7th expiry VIX futures are up .125 to 14.40, with Dec 14th expiries up a similar amount to 15.05. www.cboe.com). After having ground through the entirety of "X" series SPDR's, along with a few non-X funds, it appears that EWZ and XBI offer the best implied volatility rank and implied volatility metrics for premium selling, with both being >70% in rank over the preceding six months and >35% in implied volatility, which is generally what I look for to play. Since I already have an EWZ iron fly on, I'll look to get one filled in XBI (See Post Below). * -- Currently, QQQ has the highest implied volatility of the four major index exchange-traded funds, but the Jan 20th 20 delta iron condor yields less than a 1.00 credit for a three-wide, which is what I like to see out of these trades (credit received > one-third the wing width).
TVC:VIX
by NaughtyPines
OPENING: IYR DEC 23RD 68/75/75/80 IRON FLYI had intended to put on a similar setup last week, but got distracted by something else ... . Implied volatility rank remains high here, even though IYR's background implied volatility isn't that great. Metrics: Probability of Profit: 44% Max Profit: $343/contract Max Loss/Buying Power Effect: $357/contract Break Evens: 71.57/78.43 Notes: The probability of profit metric on these always seems to suck hard (45-50%). The trade off between this and an iron condor (which has a higher probability of profit) is greater premium at the door, so a better max profit/loss ratio. This is basically a 1-1 setup; most iron condors I do are 1-2. Look to manage at 25% max profit as you would a short straddle ... .
AMEX:IYR
by NaughtyPines
ROLLING: IWM DEC 9TH 116.5/119.5/123.5/126.5 IRON CONDOR ... ... to Dec 9th 124/127/127/131 Iron Fly for a .47 ($47)/contract credit. I figured I had to do something here to improve the prospects of this broken iron condor. I first rolled the short call vert side from the 116.5/119.5 short call vert to the 127/131. The only way to get a credit from this intra-expiry roll was to widen the spread by one strike. And then rolled the short put side up to the 124/127, creating an iron fly. In order for this setup to have a "perfect finish," price will have to roll back into the "body" of the setup toward expiry. If it doesn't, I'll roll the short call side out again, improve the strikes if I can, and sell the short put side against for a credit such that the cost of the roll is "net credit." Just can't believe that IWM won't give up some of this post-election up-move ... at some point.
AMEX:IWM
by NaughtyPines
OPENING: EWW DEC 16TH 39/45/45/50 IRON FLYPost-election, there isn't much out there exchange-traded fund wise with both high implied volatility rank/percentile and high implied volatility. This is one of them ... . (I've tried repeatedly to get into an EWW play, but just can't seem to get a fill at the mid price). This isn't the most liquid thing in the world, so I'm going with the most liquid expiry -- the Dec 16th monthly. Metrics: Probability of Profit: 43% Max Profit: $302/contract Max Loss/Buying Power Effect: $298/contract Break Evens: 41.98/48.02 Notes: Will look to manage for 25% max profit ... .
AMEX:EWW
by NaughtyPines
OPENING: XLU DEC 30TH 42.5/46.5/46.5/49.5 IRON FLYAdding to my core exchange traded fund fly positions here with this high implied volatility rank underlying. (I already have some XLU on, so just adding a "smidgeon" here). The implied volatilty in this isn't great, but then it's almost never "great" ... . Metrics: Probability of Profit: 46% Max Profit: $210/contract Max Loss: $190/contract Break Evens: 44.40/48.60 Notes: Will look to manage this like a short straddle -- at 25% max profit ... .
AMEX:XLU
by NaughtyPines
OPENING: TWTR NOV 11TH 14/18/18/22 IRON FLY (EARNINGS PLAY)Playing TWTR earnings for volatility contraction here ... . The metrics: Probability of Profit: 47% Max Profit: $217/contract Max Loss/Buying Power Effect: $183/contract Break Evens: 15.83/20.17 Notes: As with a short straddle, I'll look to manage this at 25% max profit. I'm putting this on a touch early so that I don't space it out at the last moment. My ordinary go-to strategy for earnings/vol contraction plays are either a short strangle or an iron condor, but I just couldn't get the credit I wanted out of those setups with this underlying, so went with an iron fly instead.
NYSE:TWTR
by NaughtyPines
2
OPENING: XLU DEC 2ND 45/48.5/48.5/51 IRON FLYThe underlying implied volatility in XLU is not very high, but it's high relative to where it's been the last 52 weeks (currently, 72 (Dough 52-week implied vol percentile)). Here are the metrics for the setup: Probability of Profit: 43% Max Profit: $175/contract Max Loss/Buying Power Effect: $175/contract Break Evens: 46.75/50.25 Notes: As you can see, this isn't a very high probability setup. Basically, it's a risk one to make one. The notion here is to take maximum advantage of the at-the-money premium as you would with a short straddle, which -- like an iron fly -- is a short volatility strategy. If you sell your short options farther away from current price, as you would with an iron condor, your probability of profit increases, but your profit potential decreases because the out of the money strikes bring in less premium. From a price action standpoint, you're looking for price to stay within your break evens and ideally for volatility to collapse somewhat running toward expiry. Unlike an iron condor or short strangle, I look to manage at 25% max profit.
AMEX:XLU
by NaughtyPines