XRT
XRT 37/42 Strangle updateOn August 10, I sold the 37/42 Sep 15 strangle in XRT, about 19 delta strikes for 0.65.
80% IV Rank and 26.6% IV. The following week I closed the 42 call at 5c for no fee.
The 37 put remains, and the share price looks like a good spot for it to bounce upward from here.
Today the XRT is up the greatest % of the sector SPDR ETFs as investors do some bargain hunting following the past few days of weakness in the major indexes.
Ideally I could let the put expire worthless...
Retailers and XRT are going to sell sharply on poor economicsI am very bearish on the United States economy. Retail data has been sliding lower and I expect that to get worse before ti gets better. Plus, on aggregate, one company seems to be taking all the business away from the rest. The others will collectively drag down the industry as more and more consumers switch to online shopping.
I am bearish on XRT and going short and have an extensive article on this .
81% probability trade on XRT (Put Ratio spread) High probability trade on XRT with no risk to the upside. Max profit at $41 our break even at $39.85.
The trade:
Sold Two (-2) 41 Puts for every one (-1) 42 Put for a credit of $0.15 (per contract).
THE WEEK AHEAD: PIVOT TO NON-HIGH VOLATILITY STRATEGIESWith this quarter's earnings season all but over and with VIX trundling along at sub-10 levels, there is a paucity of high implied volatility plays in the market for premium selling, so I'm looking at deploying something in either low volatility strategies (diagonals) or in directional plays that I've been eyeing.
Screening for underlyings with greater than 70% implied volatility rank over the past 52 weeks, greater than 50% background implied volatility, and relatively high options liquidity yields a few names -- P, HTZ, and NBR, but it'll be tough to squeeze good premium out of these because they're all <$10 underlyings. I would be willing to get into exchange-traded funds if only there was one with >70% implied volatility rank and >35% implied volatility; there currently isn't.
With the individual underlyings, a P 9 short straddle in the July 21st expiry yields 1.84 at the mid with BE's at 7.16 and 10.84 (put side, below expected move; call side, at expected move); a HTZ July 21st 10 short straddle yields 2.03 with BE's at 7.97 and 12.03 (both sides clear of the expected move); and the NBR July 21st 9 short straddle, 1.54, with BE's at the expected move on the put side and above it on the call (7.46/10.54).
Alternatively, NBR is a petro play,* so I can see taking a bullish assumption on the underlying and short putting it, even though it won't pay all that much (the July 21st 8 put brings in .40 with a BE of 7.60).
Directionally, I've got my eye on two sector exchange-traded funds: XLE and XRT. Out of all the sectors, energy and retail have been the most downtrodden, so this may be an opportunity to go long with comparatively "cheap" setups that have oodles of time to work out -- Poor Man's Covered Calls -- with long-dated back months several cycles out. I'll post setups on those separately; however, each time I look to pull the trigger on a bullish XLE setup, oil seems to trundle lower and XLE with it ... .
* -- NBR is deepwater; if they're not in trouble now with oil sub-$50/bbl., they will be in trouble in short order if prices hang around here for long. Generally, BE for deepwater oil exploration and production is well above this year's $55/bbl. high, so I'm hesitant to take a bullish assumption on deep water anything. Frankly, I'd rather put my buying power to work on something like XOP, where I'm not exposed to single name risk in this area, given the fact that there are so many troubled companies in this sector.
$RTH and $XRT - Two retail ETFs, two stories$RTH is mostly $WMT and $HD both of whom report this week.
30 Delta Strangle on XRT I always look to have a trades on the most liquid ETF's and I just closed a Straddle on XRT so is time to redeploy with 45 days to expiration. IV rank is at 37. Sold the 40/43 Strangle on XRT for $1.02 per contract (30 Delta).
61% probability of profit
Credit = $1.02
My break evens are below 38.98 and above 44.02
Will look to close at 50% of the credit received.
WMT. Short on Fibo confluence and possible pattern cascadeChart shows that price is being bewered in a strong resistance zone, which is trying to break once again. A 75.90 per share has an interesting Fibo confluence which may be considered as a "do-or-die" level as it is a level which validates or invalidates two Cypher patterns.
Only a bigger one is shown, which would complete at 60.60 per share, while a smaller one points towards an eventual return to below 70 per share. Will open a short position aiming 67 as a first target and then watch on how the price behaves. My SL will be placed at 78 per share
XRT COULD BE BREAKING OUT HERE!XRT testing the prior breakdown on the hourly. Upside target 42.29 if overtaken.
THE WEEK AHEAD: SNAP, FEZ, XLV, AND XRTWith four weeks or so until the next batch of earnings, I'm briefly turning my attention to exchange-traded funds to see if there's anything I can play to bridge the gap between earnings seasons.
As with the previous several weeks, there isn't much; only three are near or above the 70th percentile for implied volatility over the past six months: FEZ, with an implied volatility rank of 86, and a background implied volatility of 20; XLV (68/17) (no surprise there; some friskiness associated with the failed Repeal and Replace measure); and XRT (67/22). I will look to work XLV and XRT with iron flies, possibly, but I may go directional on FEZ, since it's meant to replicate the performance of the Euro Stoxx 50.
The other possibility is SNAP. It hasn't been on the block long enough for it to have a "6 month" metric of anything, but its background implied volatility is at 59%, and that's somewhat high for this market. Because of its potential for rippage, I think the best play in that is directional or where there is no directional risk on one side or the other (put diagonal, Jade Lizard, Big Liz).
I'll putz with possible SNAP setups here and post separately if something looks particularly attractive ... .
XRT Iron FlyStill looking for any IV in the market - XRT had a 35 IVP, so I thought I would put something small on. Focused on minimal BP exposure during these tough times in IV, but I have to keep a decent # of occurrences up regardless.
Trade Setup:
- 1 XRT Mar 17 42/44/44/46 Ironfly @ $1.34
DTE: 30
Max Win: $134
Max Loss: $66
Breakevens : 42.66 and 45.34
Trade Management: Look to take around 25% or $35 in the trade; Full loser on the trade or I may roll out the ITM/tested side if on the dance floor near exp.
Green is profit zone; Vertical black bar is expiration.
THE WEEK AHEAD: TGT, BBY, LOW, XRT AND THE VIXWith earnings in TGT, BBY, and LOW, it's no surprise that implied volatility in the retail ETF, XRT, has ramped up here a bit (sixth month implied volatility rank is 73/implied volatility is 22).
That being said, I'm really only looking at BBY for a play given its implied volatility rank/implied volatility (93/48). HTZ also announces earnings and has the right metrics for a play, but has 2.5 wide strikes where I'd want to set up, so I won't be playing that. TGT and LOW's background implied volatility probably will not be sufficient for me to play (they're in the high 20's/low 30's; I prefer something around or above 50).
Relatedly, however, XRT is starting to "frisk up", so I may consider putting on a fly there if I can do a setup that brings in 1/4th of the width of the long options.
Additionally, VIX spot hasn't moved significantly, but back month VIX futures options have ticked up a bit such that you can get in on a term structure trade in VIX in the May expiry at the 16 strike for a decent credit (e.g., May 16/19 short call vert).
And that's what I'm looking at for the week ... .
THE WEEK AHEAD -- NVDA, XRT, AND THE VIXIf you're a premium seller, you're probably doing a bit of hand-sitting here (again) with VIX again at sub-12 levels. There are, however, a few things that could prove productive ... .
NVDA: With a six-month implied volatility rank of 85% and general background implied volatility of 55%, it's ripe for a volatility contraction play. They announce earnings on Thursday after market close, so I'll look to put on a play on Thursday sometime before NY close. I'll post setups as we get closer ... .
XRT: If you're looking to sell premium in the broad market or in sector exchange-traded funds, well, you're largely out of luck. XRT, however, is one with relatively high implied volatility rank/implied volatility such that it might be worth a play, but I'm not holding my breath. Last time I looked, my standard iron fly setup, 45 DTE, was paying a little more than 2.00 in credit at the door. It ain't great, but there isn't that much "great" in this market, currently.
VIX: Ugh. VIX term structure is awfully shallow here, with the first /VX future at >16 (barely) wayyyy out in May. These kinds of levels militate in favor of hand-sitting on any bearish assumption term structure trades until we can see a pop in spot.
TRADE IDEA: XRT FEB 6TH 41.5/44.5/44.5/48 IRON FLYYou know me, goin' where the volatility takes me, and today it's in the retail space.
Metrics:
Max Profit: $213/contract
Max Loss/Buying Power Effect: $137/contract
Break Evens: 42.37/46.63
Notes: As with all flies, I'll look to take profit at 25% max. This is based on after hours quotes, so this setup may not be as sexy as it looks now come NY open, so it may need some "tweaking."
GET OUT OF THE S&P RUT: LOOK AT ETF'S AND INDIESIf you have ever spent more than a few hours in the Stocks and Indices chat room, you'll soon get the impression that the trading universe is seemingly made up primarily of E-Mini S&P Futures, SPX CFD's, and/or SPY (I probably exaggerate a touch, but that's the overall impression I get), along with a repeated frustration with the way the S&P is behaving in one way or another: the old "it shouldn't be here," "a correction is due," "who's buying way up here," etc. In short, some are frustrated, for various reasons, with the S&P or other broad U.S. market instruments.
Well, there's hope for you out there ... . And that's because the trading universe is made up of a ton of instruments that focus on various sectors, various markets, and individual companies. Naturally, some of these don't trade 24/5 like SPX500 or /ES, but if you can't figure out how the S&P, /ES, or SPX500 should be traded here, you should quit banging your head against the wall and move on to other instruments. (Unless you enjoy banging your head against a wall ... ).
Some of the more obvious things to look at are naturally instruments like GLD (the gold ETF), SLV (the silver ETF), and TLT (the treasuries ETF). For non-US broad market exposure, look at things like EFA (the world market, ex. Canada and the U.S. ETF) and EEM (the emerging markets ETF). And for U.S. equities sector exposure, look at sector SPDR's, such as XME (mining), XBI (biotech), XRT (retail), XLF (financials), etc.
Naturally, getting into individual stocks can be a bit of a slog due to the number of companies involved. However, you can contract that universe to liquid stocks trading an average than 2 million shares daily and that are within the price range you want to devote to a play.
XRT Retail Earnings POTENTIALRetail earnings are in full swing this upcoming week!
Here is a TA based version of my expectations for the week.
In previous quarters the strong USD and the slow down in Consumer Spending hit profits hard.
With retail sales up throughout the quarter and consumer confidence at 2016 high, all around beats are expected.
Driving retail market capitalization back to Q2 2015 level offers a short-term 8% return.
In the longer run, or collectively throughout the remainder of Q2, a 16% return is in the works.
