Although earnings season continues to drag on here, a small financial media theme has emerged in this sell-off and that's that "Earnings don't matter" ... at least, at the moment.
In keeping with that mini-theme, I'm looking at putting on plays in sector exchange-traded funds, and two of the ones that have been battered the most in this market have been OIH and XLV.
My tendency with petro in the past is to play it directionally, although I have dabbled with nondirectional setups like iron flies, short straddles/strangles as well. Both types of setups could be productive here due to the underlying's high implied volatility metrics, which were above 45% as of Friday close.
Here are two plays -- one directionally, one non- in OIH:
OIH Synthetic Covered Call
March 29th 26 short put
Probability of Profit: 53%
Max Profit: $271/contract
Max Loss: Undefined
Break Even: 23.29
Notes: Shoot for 50% max of the credit received.
OIH Short Strangle
March 29th 22/26 short strangle
Probability of Profit: 64%
Max Profit: $125/contract
Max Loss: Undefined
Break Evens: 20.75 put side/27.25 call
Notes: Also go for 50% max of the credit received.
The XLV Plays:
March 29th 75/87 short strangle
Probability of Profit: 57%
Max Profit: $250/contract
Max Loss: Undefined
Break Evens: 72.50/89.50
Notes: Go for 50% of credit received. The spreads are showing wide after hours, so you'll have to run this setup to see if it's worthwhile during regular market hours. My guess: it won't pay 2.50 at market open ... .
Synthetic Covered Call
March 29th 86 short put
Probability of Profit: 52%
Max Profit: $505/contract
Max Loss: Undefined
Break Even: 80.95
Note: As with the short strangle, showing bid 2.81/mid 5.05/ask 7.30, so the metrics will change at open.
In keeping with that mini-theme, I'm looking at putting on plays in sector exchange-traded funds, and two of the ones that have been battered the most in this market have been OIH and XLV.
My tendency with petro in the past is to play it directionally, although I have dabbled with nondirectional setups like iron flies, short straddles/strangles as well. Both types of setups could be productive here due to the underlying's high implied volatility metrics, which were above 45% as of Friday close.
Here are two plays -- one directionally, one non- in OIH:
OIH Synthetic Covered Call
March 29th 26 short put
Probability of Profit: 53%
Max Profit: $271/contract
Max Loss: Undefined
Break Even: 23.29
Notes: Shoot for 50% max of the credit received.
OIH Short Strangle
March 29th 22/26 short strangle
Probability of Profit: 64%
Max Profit: $125/contract
Max Loss: Undefined
Break Evens: 20.75 put side/27.25 call
Notes: Also go for 50% max of the credit received.
The XLV Plays:
March 29th 75/87 short strangle
Probability of Profit: 57%
Max Profit: $250/contract
Max Loss: Undefined
Break Evens: 72.50/89.50
Notes: Go for 50% of credit received. The spreads are showing wide after hours, so you'll have to run this setup to see if it's worthwhile during regular market hours. My guess: it won't pay 2.50 at market open ... .
Synthetic Covered Call
March 29th 86 short put
Probability of Profit: 52%
Max Profit: $505/contract
Max Loss: Undefined
Break Even: 80.95
Note: As with the short strangle, showing bid 2.81/mid 5.05/ask 7.30, so the metrics will change at open.