THE WEEK AHEAD: NFLX, IBM EARNINGS; ASHR, GDXJ, XOP, EWZ

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EARNINGS:

NFLX and IBM both announce on Tuesday after market close, so look to put on something in the waning hours of Monday's session if you're going to do a volatility contraction play.

Pictured here is a NFLX (42/46) 25/10 iron condor,* with the short option strikes at the 25 delta; the longs at the 10 (as of Friday close). Metrics: $825 max profit; $1675 max loss; 24.6% return at 50% max; break evens wide of the expected move at 311.75/393.25, delta -.74, theta 16.21. Potential volatility contraction from the nearest weekly (April 18th: 78.6%) to the May expiry (44.2%) appears to be in the neighborhood of 40%. The wings can naturally be narrowed to generate a softer buying power effect (e.g., the 310/320/385/395 pays 4.18 ($418) with a max loss/buying power effect of 5.82 ($582), -.45 delta, 6.48 theta and with break evens still wide of the expected).

IBM (67/29): The May 17th 130/135/155/160 is paying 1.50 at the mid with fairly wide markets and pesky strike availability in the May cycle where you'd ordinarily want to pitch your tent. On check on a similarly delta'd setup in the New York session, I'd pass if you can't filled with a fairly delta neutral setup for at least one-third the width of the wings. Potential volatility contraction from the nearest weekly (April 18th: 53.9%) to the following monthly (May 17th: 28.4%) looks to be fairly decent at around 45%.

THE EXCHANGE-TRADED FUND FRONT

Top of the List: ASHR (53/29), GDXJ (33/28), OIH (27/31), XLV (24/14), GDX (21/22), XOP (20/30), and EWZ (18/32).

We're kind of mid-cycle here with May being a tad short (33 days) and June being a tad long (68 days), so would probably wait to put something on until June comes more into view.

Since I don't have anything on in EWZ currently, I might make an exception there. The May 17th 26 delta 38/43 short strangle is paying 1.19, with break evens wide of the expected move at 36.81/44.19, delta -.16, theta 3.6.

BROAD MARKET

With VIX finishing the week at a penny north of 12, we could be in for a long, dry summer of premium selling (who knows, really). A good time to dry powder out and keep it dry for the next uptick in volatility ... .

* -- There is some research in support of the notion that 25/10's more closely emulate short strangle performance over a large number of occurrences; this is naturally intuitive, since you're paying less for the longs, bringing in more credit, and therefore generating more favorable break evens over a tighter winged setup.

노트
Markets are wide in NFLX and some adjustment to the posted setup would be in order if you want in, since it's up about $6 in early trading: The May 17th 305/325/390/410 is bid 6.53/mid 6.81/ask 7.06 just to give you an idea ... . Too wide for my tastes ... . Good liquidity is your friend; bad liquidity isn't.
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