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April 18, 2016 at 10:12 am #5431Steven PlaceKeymasterApril 18, 2016 at 10:21 am #5436JaredParticipant
SPLK nice move up this morning above $50. Limping into a small position – May 49 calls @3.10. Stop @48.5.
April 18, 2016 at 10:29 am #5433Steven PlaceKeymasterLet’s hunt down a good trade idea for NFLX.
The stock is a great example of “going nowhere fast”. Huge range between 80-130 over the course of a year. I’m sure you could make the case for both the bullish and bearish side here, but taking a step back to a 1 year chart shows that there really isn’t any kidn of clear long term trend.
This is important because what we know is that fundamental surprises tend to follow the trend of the stock. Since there really isn’t a trend (and yes the stock is rising but I think it’s more a function of being correlated to the overall market) then it’s tough to make any kind of aggressive directional bet.
Let’s take a look at the vol:
The 109 straddle is going for about 12 bucks. That seems light but I want to compare that to previous moves.
Past 4 earnings have seen max movement of 14% on average. The market is pricing in about 11% so vol feels like a buy.
I do see something really, really weird… the implied volatility curve is not super steep. In fact, it looks really goofy:
The 109 put has an IV of 112% and the 100 put has an IV of 112%
Normally when you head into an earnings event the IV tends to be really steep on the downside as investors are scared about downside risk.
But it’s flat.
Butterflies make sense here then. I’d even look at combining an OTM put fly with something like the 120 call.
So here’s the trade I’m probably going to take:
Buy 1x NFLX Apr4 120 Call @1.80
Buy 5x NFLX Apr4 92/97/102 Put Fly @0.60
If NFLX gaps up above 120 i’ll start scaling into some short stock to cover the risk. 20 shares at 120 and another 20 at 125 per round.
Also, if you want a cheap daytrade:
Sell -1 NFLX Apr4 107 Put
Buy +2 NFLX Apr4 101 Put
Get it for a flat cost.
Ideally the skew steepens later in the day and you can take this off for like .20-.30 in profits.
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You must be logged in to view attached files.April 18, 2016 at 11:35 am #5443Wulin YuParticipantSteve can you explain why the butterfly in the NFLX trade is buying vol instead of selling vol?
April 18, 2016 at 12:21 pm #5444Steven PlaceKeymasterHere’s a chart of the vega (sensitivity to change in implied volatility) of that butterfly:
Keep in mind, the fly centers around 97.
Notice how if NFLX was trading at 97 and the fly was at the money, it would be at “peak” short vega.
Also notice that if the butterfly is really, really out of the money then it actually has positive vega.
The final thing to remember… there’s two kinds of vol:
- What is implied in the options premium
- The actual price movement
The BIGGEST thing that will affect the price of this butterfly is is you see a BIG move in ACTUAL volatility… meaning if NFLX sells off 10 points.
So in this case I’d consider this to be a long vol play because if you don’t see any vol, you lose.
*Technically* it’s short implied volatility but not by much. The real action comes if the stock moves.
Contrast that with an at-the-money fly… in order to profit you want to see premiums go down *and* for the stock to stay rangebound.
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You must be logged in to view attached files.April 18, 2016 at 12:30 pm #5451Steven PlaceKeymasterNew trade in GPRO:
April 19, 2016 at 11:01 am #5471Steven PlaceKeymasterIf you played the NFLX idea, just clsoe the put fly @1.70
April 19, 2016 at 11:02 am #5473Steven PlaceKeymasterI think the massive short squeeze in X (US Steel) is nearing an end.
Buying May 21 Puts @2.18, will add at 1.75
April 20, 2016 at 9:26 am #5497Steven PlaceKeymasterI think we are getting overbought here, but we’ve seen stranger things happen.
2100 has been a huge psychological magnet in the past and the S&P cash hit it yesterday.
For now I’m looking for a breach under 2085, if that clears then I think 2065 will be tested sooner than later.
The longer we hold above 2085 the higher the odds of a move to 2130.
- This reply was modified 7 years, 1 month ago by Steven Place.
April 20, 2016 at 10:27 am #5505Steven PlaceKeymasterHere’s a chart of VRO, it shows the settlement values for the VIX in options expiration.
Today’s settlement at 12.38 is the lowest since Aug 2015
April 21, 2016 at 11:50 am #5520JaredParticipantHad to wait for the CELG 110 calls to come down from 5.00 to 4.50 for the fill, but got it. Now let’s ride this one up!
April 21, 2016 at 12:04 pm #5521JaredParticipantSteve, similar to X – how do you feel about parabolic short in JOY?
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