NaughtyPines

X EARNINGS SHORT STRANGLE/IRON FLY

NYSE:X   UNITED STATES STEEL CORP
X 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.
Kommentar: Had to tweak, naturally, given the movement of the underlying today and went with the fly: 23.5/32/32/40 for a 3.81 credit.
Kommentar: Post-announcement, AH tape: low bid 32.01, high ask 32.4. If it stays there, that will be "bueno" for the fly at NY open.
Trade wurde manuell geschlossen: Covering here for a 3.14 db; .67 ($67) gross profit per contract.
I am short X while long XME as a hedge.
Antworten
@baerrus, I looked at a short strangle, as well as an iron condor with a 20-delta short strangle body. Wasn't hugely excited about what those would bring in, so I settled on basically a short straddle with some cheap ass wings to lower buying power effect ... .
Antworten
wow that is a large Bfly. This is essentually a short straddle since your wings are so wide. Delta ~5. Collecting $3.81 is not bad. the straddle is pricing 9% move.
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