THE WEEK AHEAD: XOP, EWZ, GDXJ
It's somewhat a lather, rinse, repeat of last week, given the fact that we're kind of in-between earnings seasons, with the next to kick off here in a couple of weeks.
XOP:* With the underlying somewhat in the middle of its range, I'm more inclined to go directionally neutral here, either via short strangle or iron fly.
The 27 delta-ish May 18th 33/38 short strangle is paying 1.26/contract with break evens at 31.74/39.26; for the less aggressively inclined, the 32/39 is paying .84. For both of these, look to take profit at 50% max.
The May 18th 30/35/35/41 dynamic iron fly** is paying 2.75 with break evens at 32.25/37.75. Look to take profit at 25% max.
EWZ: "The Brazilian" is perennially frisky ... .
The May 18th 41/49 is paying 1.13 at the mid with break evens at 39.87/50.13, with the 30/35/35/41 dynamic iron fly paying 3.34.
GDXJ:*** My general tendency with GLD, GDX, and GDXJ are bullish assumption setups on weakness. Unfortunately, GLD is at a bit of a high here, and there is divergence between GDX/GDXJ in terms of strength versus the commodity, implying that weakness in gold may drag GDX/GDXJ down, when they're already toward the weak side of their ranges to begin with. Consequently, it may pay to be patient and wait until GDXJ drops to the bottom of its range between 30 and 31 before pulling the trigger on something bullish. Caveats aside, here are three bullish assumption setups:
The "spack"**** trade: May 18th 30 short put for .45 with a break even of 29.55. Ride the short put to expiry. If assigned, proceed to sell calls against at or above your cost basis (29.55).
The Synthetic Covered Call: May 18th 34 short put (70 delta) for 2.40 with a break even at 31.60. Look to take profit at 50% max (i.e., 1.20/contract). Otherwise, roll out for duration "as is" for additional credit or proceed to cover at or above cost basis (31.60) if assigned.
The Poor Man's: May 18th 34 short/Aug 17th 26 long, 6.01 debit for an 8 wide (75% debit/width ratio) with a break even of 32.01 versus 32.15 spot. Look to take profit at 20% of what you paid to put the setup on for (i.e., 1.20/contract).
* -- I'm in an XOP May 32/39 I put on last week for around a 1.00/contract.
** -- An iron condor won't pay one-third of the width of the wings here.
*** -- I'm already in a long-dated GDX net credit diagonal, so won't be partaking of GDXJ here.
**** -- Short Put Acquire Cover.
XOP:* With the underlying somewhat in the middle of its range, I'm more inclined to go directionally neutral here, either via short strangle or iron fly.
The 27 delta-ish May 18th 33/38 short strangle is paying 1.26/contract with break evens at 31.74/39.26; for the less aggressively inclined, the 32/39 is paying .84. For both of these, look to take profit at 50% max.
The May 18th 30/35/35/41 dynamic iron fly** is paying 2.75 with break evens at 32.25/37.75. Look to take profit at 25% max.
EWZ: "The Brazilian" is perennially frisky ... .
The May 18th 41/49 is paying 1.13 at the mid with break evens at 39.87/50.13, with the 30/35/35/41 dynamic iron fly paying 3.34.
GDXJ:*** My general tendency with GLD, GDX, and GDXJ are bullish assumption setups on weakness. Unfortunately, GLD is at a bit of a high here, and there is divergence between GDX/GDXJ in terms of strength versus the commodity, implying that weakness in gold may drag GDX/GDXJ down, when they're already toward the weak side of their ranges to begin with. Consequently, it may pay to be patient and wait until GDXJ drops to the bottom of its range between 30 and 31 before pulling the trigger on something bullish. Caveats aside, here are three bullish assumption setups:
The "spack"**** trade: May 18th 30 short put for .45 with a break even of 29.55. Ride the short put to expiry. If assigned, proceed to sell calls against at or above your cost basis (29.55).
The Synthetic Covered Call: May 18th 34 short put (70 delta) for 2.40 with a break even at 31.60. Look to take profit at 50% max (i.e., 1.20/contract). Otherwise, roll out for duration "as is" for additional credit or proceed to cover at or above cost basis (31.60) if assigned.
The Poor Man's: May 18th 34 short/Aug 17th 26 long, 6.01 debit for an 8 wide (75% debit/width ratio) with a break even of 32.01 versus 32.15 spot. Look to take profit at 20% of what you paid to put the setup on for (i.e., 1.20/contract).
* -- I'm in an XOP May 32/39 I put on last week for around a 1.00/contract.
** -- An iron condor won't pay one-third of the width of the wings here.
*** -- I'm already in a long-dated GDX net credit diagonal, so won't be partaking of GDXJ here.
**** -- Short Put Acquire Cover.
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