NaughtyPines

THE WEEK AHEAD: OIH AND XLV PLAYS

AMEX:OIH   VANECK VECTORS OIL SERVICES ETF
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.


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