THE WEEK AHEAD: NFLX EARNINGS, THE VIX, SPY/SPX, RUT/IWM, QQQ
There is a bevvy of earnings next week, starting out with NFLX on Monday after market close. It appears fairly close to being ripe for a delta neutral volatility contraction play like a short strangle since both its implied volatility rank and implied volatility are high (70 (six-month)/44).
The April 28th 131/157.5 20-delta short strangle is paying 3.80 at the mid; a defined risk setup with the short options at the same strike -- a 128/131/157.5/160 pays 1.03 credit at the mid.*
At the moment, I'm not seeing much else that's ripe from a volatility perspective; for example, the financials (e.g., BAC, GS, MS, etc.) never get that particularly frisky, so I generally don't play them for volatility contraction.
On other fronts, the VIX is getting "interesting," but if you look at the term structure for VIX futures, all the "action" is in the front, with only the April monthly popping. All the back months (May, June, etc.) have nudged upward only modestly, so it will be interesting to see what occurs when the April futures contract rolls over to the May (April's currently priced at 16.32; May at 15.22). Since I generally use the futures pricing as a guide for my short VIX setups, I'm waiting for the rollover until I consider more short setups.
And with the VIX getting interesting at >15, my general rule is to rotate back into broad index exchange traded fund setups in SPY/SPX, IWM/RUT, QQQ, etc. and pass on earnings and/or other single name risk plays.** Consequently, I may be looking at plain old bread and butter SPY/SPX, RUT/IWM short strangles and iron condors early next week, assuming that the >15 VIX sticks around long enough for me to play.
* -- The call side is somewhat pesky in this expiry, with call strike width widening out 2 1/2's above 150.
** -- My order of preference is to sell premium in (1) broad index exchange-traded funds like SPY where VIX >15; (2) sector exchange traded funds where implied volatility rank is greater than 70 and implied volatility is greater than 35; and (3) individual stocks where implied volatility rank is greater than 70 and implied volatility is greater than 50.
The April 28th 131/157.5 20-delta short strangle is paying 3.80 at the mid; a defined risk setup with the short options at the same strike -- a 128/131/157.5/160 pays 1.03 credit at the mid.*
At the moment, I'm not seeing much else that's ripe from a volatility perspective; for example, the financials (e.g., BAC, GS, MS, etc.) never get that particularly frisky, so I generally don't play them for volatility contraction.
On other fronts, the VIX is getting "interesting," but if you look at the term structure for VIX futures, all the "action" is in the front, with only the April monthly popping. All the back months (May, June, etc.) have nudged upward only modestly, so it will be interesting to see what occurs when the April futures contract rolls over to the May (April's currently priced at 16.32; May at 15.22). Since I generally use the futures pricing as a guide for my short VIX setups, I'm waiting for the rollover until I consider more short setups.
And with the VIX getting interesting at >15, my general rule is to rotate back into broad index exchange traded fund setups in SPY/SPX, IWM/RUT, QQQ, etc. and pass on earnings and/or other single name risk plays.** Consequently, I may be looking at plain old bread and butter SPY/SPX, RUT/IWM short strangles and iron condors early next week, assuming that the >15 VIX sticks around long enough for me to play.
* -- The call side is somewhat pesky in this expiry, with call strike width widening out 2 1/2's above 150.
** -- My order of preference is to sell premium in (1) broad index exchange-traded funds like SPY where VIX >15; (2) sector exchange traded funds where implied volatility rank is greater than 70 and implied volatility is greater than 35; and (3) individual stocks where implied volatility rank is greater than 70 and implied volatility is greater than 50.