Shortstrangles — Trading Ideas on TradingView

OPENING: EWZ JUNE 19TH 39/54 SHORT STRANGLE ... for a 1.46 credit. Notes: Going out to the first expiry in which the at-the-money short straddle pays greater than 10% of the stock price and selling the 16's with the intent to potentially do additive delta adjustments over time. From a portfolio-wide perspective, I have a good sprinkling of longer-dated core exchange-traded fund positions to start out the year: some SPY, SMH, XBI, and XOP, around which I'll play single name from time to time, as well as my standard short volatility stuff in VIX, VXX, and UVXY.

CLOSING: SPY SEPTEMBER 18TH 265 SHORT PUT ... for a 3.14 debit; 4.09 ($409) profit. Notes: Taking profit on the put side. Delta/theta -26.43/30.65. Position value at 89.18 versus scratch at 87.41. Will look to flatten short delta going forward if the market doesn't do it for me.

IMPLIED VOLATILITY LULL -- A GOOD TIME TO DO HOUSEKEEPING ... .With the CBOE Volatility Index at 13-ish here, there is nary a premium selling play in the market ... . Naturally, that can quickly change, but in the mean time, it's "housekeeping time." "Housekeeping time" is a largely boring affair: 1. Look at Setups for Delta Balancing. If you've been reading any of my posts, you'll notice that I largely concentrate on "oppositional" trades, like iron condors and short strangles. While I do look at these frequently to see whether delta balancing should be done (ordinarily by rolling a side toward current price), I'm not always that on top of it because I've got so many setups on. Now's a good time, though, to go through them one by one and see whether a side can be rolled toward current price while keeping the rolled side in a fairly high state of probability of profit and getting "something decent" to do it. With the fees and commissions I pay and the number of contracts I use,* I generally look for at least $25/contract for the roll; otherwise, I don't bother. 2. Look at Setups for "Potential Problem" Areas. Ordinarily, I'm not particularly "proactive" with setups beyond taking advantage of price movement to delta balance by rolling a side toward current price. I let the probabilities play out and look to manage broken sides toward expiry rather than trying to micromanage the setup at every adverse movement that occurs. Sides are going to be broken somewhere, somehow; it's best to just accept that fact and manage it mechanically. In any event, this low volatility market is an ideal time to devote a little buying power to being slightly proactive on sides that are broken or are on the verge of being broken, since nothing much else is going on. 3. Catch Up on Resource Materials. Now's the time to catch up on some of your favorite market resources, although the currency of some will have passed. In particular, I like to use these periods to watch archived TastyTrade episodes, particularly the Market Measures segments, and whatever else looks interesting or involves an area in which my knowledge is less than "keen." Naturally, everyone has their favorites resources, and there's no time like the present to catch up on them ... . 4. Resist FOMO ("Fear of Missing Out"). Not putting on trades blows. I generally like to put on a new setup daily, but it simply isn't worthwhile here. But the thing I don't want to do is abandon my guns and put on a sub-par premium selling play "just 'cuz" I have to put something on; that's one of the worst reasons to put on a trade. Regardless of how you trade (scalp, position, swing, etc.), if your setup isn't there, it isn't there. To put a positive spin on it, I'm (1) drying out powder for the next volatility event, when I can pile into stuff to my heart's content; and (2) I'm resting up. Face it. Having tons of trades on at a time, is, well, just plain ass stressful. Enjoy the time while you can ... . * -- You'll note that all of my setups are shown as one contract plays. In reality, they're "a bit" more than that and frequently vary by instrument, but I like to show what can be done with just one contract, emphasizing the importance of sizing the trade to your particular account size.

OPTIONS TIP: HOW TO PLAY EARNINGS (PT II)5) Look at Setups in Expiries in the Friday Immediately Following the Announcement or the Friday Thereafter. I mechanically set these up in options that expire the week following the announcement, as it gives me a little more time for the setup to work out. 6) Avoid ADR's and/or Underlyings That Aren't Scheduled to Announce on a Particular Date/Time. Next week, STX earnings are scheduled "for some time on April 15th." If STX doesn't know at this point in time whether it's going to be before market or after or even on the 15th at all, don't play it; they could occur on the 15th or some other date or time that isn't currently known to the market. You're looking for volatility contraction immediately post announcement for premium selling plays, and if you don't know when that announcement will be, you certainly can't be expected to know when the contraction will occur. 7) Go Small. Limit these plays to, at most, 5% of your total buying power. These plays do go awry on occasion, so it's important not to go "crazy big" from the get go, keeping buying power available for the plays you want to do going forward in the season. 8) Look for 50% Max, Get Out, and Redeploy. These plays are meant to be quick and dirty, take the money and run affairs. After getting a fill for the setup, immediately set up a GTC order to have it taken off at 50% max. 9) Don't Panic On Breach/Familiarize Yourself With Rolling Methodology. On occasion, the move in the underlying is greater than anticipated by the Black Scholes model, and a side your setup will be breached. It is important not to panic in these circumstances, allow the setup to play out, and then roll the tested side if you have to for duration as expiry approaches to allow the setup additional time to work itself out. Knowing how to mechanically address these breaches is critical to these trades. (See Rolling Posts, Below).

OPTIONS TIP: HOW TO PLAY EARNINGS (PT I)Traditionally, AA's earnings announcement marks the beginning of the earnings season for me, and it announces earnings on Monday after market close. Naturally, there are tons of plays you can make, but, unfortunately, not all are ideal for premium selling or, for that matter, other options strategies that rely on a firm directional assumption (like Super Bulls/Super Bears). Here's a short checklist for what to play and what not to play with options, with an emphasis on what to look for in premium selling setups, as well as a few guidelines as to what to do once you're in the trade: 1) High Liquidity. Look for average daily volume in the underlying of at least 2 million shares. If volume of the actual shares is less than that, in all likelihood you'll be staring at wide bid/ask spreads in the options, which means you're less likely to get filled on any options order for a "fair price" (i.e., a price at or slightly above the mid price). Even if the underlying trades more than 2 million shares, pass on trades where the options' bid/ask spread is grotesquely wide. 2) No Weeklies, No Go. Truth be told, I have, on occasion, played earnings for underlyings that only have monthly expiries available; most of the time I've regretted it. They're a pain and offer less flexibility with rolls than with underlyings that have weekly expiries. Premium selling earnings plays are meant to be quick and dirty; the sooner you can get out of the play and redeploy the capital elsewhere, the better, and being stuck in a play with only monthlies can prolong the process. Additionally, having weekly expires are a hallmark of greater market interest in the options. 3) Both High Implied Volatility Rank/High Implied Volality. Look to enter trades where both the implied volatility rank is greater than 70th percentile and the implied volatility is greater than 50% (i.e., where the implied volatility is high now as compared to where its been and where the implied volatility is currently high). Keep in mind that you're looking for a volatility contraction when selling premium around earnings, so it's obviously better if the implied volatility percentage is higher, since there's "more to contract from." As an example of this, IBM, which announces earnings shortly, meets the "rank test" (its rank is greater than 70), but fails the implied volatility percentile test (<30%). It's just one of those underlyings that is never all that volatile, so I generally pass it over for premium selling. 4) Don't Force Setups. All of my short strangle/iron condored earnings plays are set up the same way, with the short option strikes in the 80-85% probability out-of-the-money strikes. With iron condors, I can naturally fiddle with the width of my wings' spreads, but I don't monkey with tightening the short options in order to get a particular credit out of the setup. If a setup doesn't offer the credit you would like to see, pass the play over entirely. (Continued in Part II).