Next Week in Weeklys – 5/16/2014

There were no additions to the new Weeklys list that came out this past Wednesday. So now that I’ve gotten that out of the way I want to discuss a trade that caught my eye this past week. It falls under the Weeklys family of trading as it was structured using non-standard options that expire on May 30th. The underlying market for this trade is the iShares US Real Estate ETF (IYR). On Tuesday there was a trader that bought 40,000 of the IYR May 30th 70.50 Puts for 0.54 and also sold the same number of May 30th 69.00 Puts at 0.18 for a net cost of 0.36. This is a bearish bet on the real estate sector that is expected to work out some time this month as May 30th is the final trading day for May.

The payoff diagram below assumes no adjustments and that the trade is held through expiration. Also, note the pricing is from last Tuesday so this is not a current picture of how the trade is going. As long as IYR is trading below 70.14 there will be a profit and from 69.00 and under the maximum profit of 1.14 will be realized.

IYR PO

As a final note I took a look at the economic calendar between now and May 30th. The last week of May has a few economic numbers that may influence the real estate sector. Specifically the Case Shiller Composite Home Price Index, FHFA House Price Index, MBA Mortgage Index, and Pending Home Sales all are released during the final week of May. IYR would most likely be influenced by those numbers.

As far as the earnings calendar goes, there are fifteen stocks with Weeklys available that report earnings next week. This could be considered a relatively light week, but I would like to point out that over the past three years ten of the fifteen stocks on this list experience an average move of over 5% on the trading day following the earnings release.   We can say the list below is a small, but mighty based on the earnings price reaction history below.

Earnings

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Russell Rhoads, CFA

CBOE Options Institute

Russell Rhoads, CFA, is a Senior Instructor with the Options Institute at the Chicago Board Options Exchange. He joined the Institute in 2008 after a career as an investment analyst and trader with a variety of firms including Highland Capital Management, Caldwell & Orkin Investment Counsel, TradeLink Securities and…

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