Case study:

The market has perhaps begun the correction that many of us were waiting for.  Because we have to become more aggressive in our pricing when the market increases in overall volatility, this week's case study is priced relatively aggressively.  The stock has lived within the current breakevens since the beginning of this year.  This case study is a longer-term calendar and we will have to pay attention to earnings, as this is a stock that does sometimes move around earnings.  The IV chart is also telling us a story--it looks like a hearbeat monitor where, every three months, IV jumps.  So the strategy would be to either exit (more than likely) or roll right before earnings.  The last earnings announcement occured May 16th, so the next announcement should occur just before the expiration of the short month.  The IV chart shows how much higher the less-than-30-day IV is in comparison to the greater-than-90-day IV.  We are setting ourselves up to take advantage of an expected IV skew in our favor, with IV that has reached over 60% +.  This alone could net us a nice profit. 

This Week’s Focus: 

• Tighter Trading-Range Opportunity
• Longer-Term position
• Solid Open Interest 

 Practice Smart Money Management—
Don't trade with money you cannot afford to lose.
Your position size should not exceed 5% of your trading account.