Another Vega Crush Target

Macy’s (M) may not be anyone’s favorite place to shop these days, but its volatility curve is set up nicely for a vega crush campaign.  We’re going to look at two different ways to take advantage of M’s volatility term structure ahead of earnings (tomorrow morning before open).

 

macys1900-1000x740Macy’s store of yore

Image via Frank Leslie’s Illustrated Newspaper

 

Macy’s

Symbol: M
Strategy: Double Calendar
Idea: Sell inflated pre-earnings IV.
When To Enter: Before 5/11 earnings announcement in the morning.

When To Exit: After earnings announcement OR we hold through expiration if there is little IV movement.

 

1-strategygraph

Click to enlarge.

 

Strategy Details:

 

Trades to open position         No.      Price    Total
buy      3rd June $35 Put     1×100    $0.72  -$72.00
sell      13th May $35 Put    1×100    $0.41    $41.00
sell      13th May $40 Call    1×100    $0.34   $34.00
buy      3rd June $40 Call    1×100    $0.59  -$59.00

Total    $-56.00

 

Initial outlay: $56 (net debit)
Maximum risk: $58 at a price of $25 at expiry
Maximum return: $114 at a price of $40 at expiry
Break/evens at expiry: $43, $32.80

 

2-macys_IV-840x415Macy’s historical vs. implied IV – click to enlarge.

 

Considerations:

Macy’s front month is running at close to 40% implied volatility, compared to around 20% for the 30-day historical volatility.  That spread will certainly compress soon after earnings come out tomorrow morning.  The double calendar is attractive because it only requires a $56 outlay, which is very close to the max risk level.

Meanwhile, you can earn twice that if the stock moves to one of the short strikes and still do pretty well if the stock does nothing.

Now for a second way to play Macy’s earnings:

 

Symbol: M


Strategy: Limping Condor

Idea: Sell inflated pre-earnings IV.
When To Enter: Before 5/11 earnings announcement in the morning.
When To Exit: After earnings announcement OR we hold through expiration if there is little IV movement.

 

3-strategygraph-B

Click to enlarge.

 

Strategy Details:

 

Trades to open position       No.    Price    Total
buy 3rd June $32.50 Put    1×100    $0.23  -$23.00
sell 13th May $35 Put        1×100    $0.41    $41.00
sell 13th May $40 Call        1×100    $0.34  $34.00
buy 3rd June $42.50 Call   1×100    $0.22   -$22.00
Total    $-30.00

 

Initial outlay: $30 (net debit)
Maximum risk: $222 at a price of $22 at expiry
Maximum return: $99 at a price of $40 at expiry
Break/evens at expiry: $41.50, $33.90

 

Considerations: 

The LC strategy uses the same logic as before, but changes the risk/reward scenario.  The initial outlay in only $30, but the max risk moves up (in a highly improbably scenario of course), and max return drops a bit.  On the other hand, this strategy will pay off more if the stock does very little.

The payoff between the max return (at the short strike) and anywhere else in the profit range is a lot narrower.  In order to differentiate this strategy sufficiently from the DC, we’re using a $2.5 gap between the short and long strikes.

 

Charts by Evil Speculator, iVolatility

 

This article was penned by Ray the Options Executioner for Evil Speculator

 

Originally published as “Two for the Price of One” at evilspeculator.com.

 

 

 

Emigrate While You Can... Learn More

 


 

 
 

Dear Readers!

You may have noticed that our so-called “semiannual” funding drive, which started sometime in the summer if memory serves, has seamlessly segued into the winter. In fact, the year is almost over! We assure you this is not merely evidence of our chutzpa; rather, it is indicative of the fact that ad income still needs to be supplemented in order to support upkeep of the site. Naturally, the traditional benefits that can be spontaneously triggered by donations to this site remain operative regardless of the season - ranging from a boost to general well-being/happiness (inter alia featuring improved sleep & appetite), children including you in their songs, up to the likely allotment of privileges in the afterlife, etc., etc., but the Christmas season is probably an especially propitious time to cross our palms with silver. A special thank you to all readers who have already chipped in, your generosity is greatly appreciated. Regardless of that, we are honored by everybody's readership and hope we have managed to add a little value to your life.

   

Bitcoin address: 12vB2LeWQNjWh59tyfWw23ySqJ9kTfJifA

   
 

Your comment:

You must be logged in to post a comment.

Most read in the last 20 days:

  • How to Buy Low When Everyone Else is Buying High
      When to Sell? The common thread running through the collective minds of present U.S. stock market investors goes something like this: A great crash is coming.  But first there will be an epic run-up climaxing with a massive parabolic blow off top.  Hence, to capitalize on the final blow off, investors must let their stock market holdings ride until the precise moment the market peaks – and not a moment more.  That’s when investors should sell their stocks and go to...
  • What Kind of Stock Market Purge Is This?
      Actions and Reactions Down markets, like up markets, are both dazzling and delightful. The shock and awe of near back-to-back 1,000 point Dow Jones Industrial Average (DJIA) free-falls is indeed spectacular. There are many reasons to revel in it.  Today we shall share a few. To begin, losing money in a multi-day stock market dump is no fun at all.  We'd rather get our teeth drilled by a dentist.  Still, a rapid selloff has many positive qualities.   Memorable moments from...
  • Monetary Metals Brief 2018
      Short and Long Term Forecasts Predicting the likely path of the prices of the metals in the near term is easy. Just look at the fundamentals. We have invested many man-years in developing the theory, model, and software to calculate it. Every week we publish charts and our calculated fundamental prices.   A selection of 1 and ½ ounce gold bars – definitely more fondle-friendly than bitcoin, but a bit more cumbersome to send around. [PT]   However, predicting the...
  • US Stocks - Minor Dip With Potential, Much Consternation
      It's Just a Flesh Wound – But a Sad Day for Vol Sellers On January 31 we wrote about the unprecedented levels - for a stock market index that is - the weekly and monthly RSI of the DJIA had reached (see: “Too Much Bubble Love, Likely to Bring Regret” for the astonishing details – provided you still have some capacity for stock market-related astonishment). We will take the opportunity to toot our horn by reminding readers that we highlighted VIX calls of all things as a worthwhile...
  • Why I Own Gold and Gold Mining Companies – An Interview With Jayant Bandari
      Opportunities in the Junior Mining Sector Maurice Jackson of Proven and Probable has recently interviewed Jayant Bandari, the publisher of Capitalism and Morality and a frequent contributor to this site. The topics discussed include currencies, bitcoin, gold and above all junior gold stocks (i.e., small producers and explorers). Jayant shares some of his best ideas in the segment, including arbitrage opportunities currently offered by pending takeovers – which is an area that generally...
  • When Budget Deficits Will Really Go Vertical
      Mnuchin Gets It United States Secretary of Treasury Steven Mnuchin has a sweet gig.  He writes rubber checks to pay the nation’s bills.  Yet, somehow, the rubber checks don’t bounce.  Instead, like magic, they clear. How this all works, considering the nation’s technically insolvent, we don’t quite understand.  But Mnuchin gets it.  He knows exactly how full faith and credit works – and he knows plenty more.   Master of the Mint and economy wizard Steven Mnuchin and...
  • “Strong Dollar”, “Weak Dollar” - What About a Gold-Backed Dollar?
      Contradictory Palaver The recent hullabaloo among President Trump’s top monetary officials about the Administration’s “dollar policy” is just the start of what will likely be the first of many contradictory pronouncements and reversals which will take place in the coming months and years as the world’s reserve currency continues to be compromised.  So far, the Greenback has had its worst start since 1987, the year of a major stock market reset.   A modern-day...
  • Seasonality of Individual Stocks – an Update
      Well Known Seasonal Trends Readers are very likely aware of the “Halloween effect” or the Santa Claus rally. The former term refers to the fact that stocks on average tend to perform significantly worse in the summer months than in the winter months, the latter term describes the typically very strong advance in stocks just before the turn of the year. Both phenomena apply to the broad stock market, this is to say, to benchmark indexes such as the S&P 500 or the...
  • The Future of Copper – Incrementum Advisory Board Meeting Q1 2018
      Copper vs. Oil The Q1 2018 meeting of the Incrementum Fund's Advisory Board took place on January 24, about one week before the recent market turmoil began. In a way it is funny that this group of contrarians who are well known for their skeptical stance on the risk asset bubble, didn't really discuss the stock market much on this occasion. Of course there was little to add to what was already talked about extensively at previous meetings. Moreover, the main focus was on the topic...
  • US Equities – Retracement Levels and Market Psychology
      Fibonacci Retracements   Following the recent market swoon, we were interested to see how far the rebound would go. Fibonacci retracement levels are a tried and true technical tool for estimating likely targets – and they can actually provide information beyond that as well. Here is the S&P 500 Index with the most important Fibonacci retracement levels of the recent decline shown:   So far, the SPX has made it back to the 61.8% retracement level intraday, and has weakened...

Support Acting Man

Item Guides

Top10BestPro
j9TJzzN

Austrian Theory and Investment

Archive

350x200

THE GOLD CARTEL: Government Intervention on Gold, the Mega Bubble in Paper and What This Means for Your Future

Realtime Charts

 

Gold in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Gold in EUR:

[Most Recent Quotes from www.kitco.com]

 


 

Silver in USD:

[Most Recent Quotes from www.kitco.com]

 


 

Platinum in USD:

[Most Recent Quotes from www.kitco.com]

 


 

USD - Index:

[Most Recent USD from www.kitco.com]

 

 
Buy Silver Now!
 
Buy Gold Now!
 

Oilprice.com