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Volatility report - week 13 - expected moves and trade setups (S&P500, Visa, Coinbase, Block)

Volatility report - week 13 - expected moves and trade setups (S&P500, Visa, Coinbase, Block)

Options 10 minutes to read
Koen Hoorelbeke

Investment and Options Strategist

Résumé:  This week's volatility report outlines key trade setups for S&P 500 Index Weekly's (SPXW), Visa (V), Coinbase Global (COIN) and Block (SQ), targeting respective market movements. Amidst varying market conditions, we offer strategies ranging from bullish to bearish.

Options are complex, high-risk products and require knowledge, investment experience and, in many applications, high risk acceptance. We recommend that before you invest in options, you inform yourself well about the operation and risks.

Volatility report - week 13 (Mar 25 - Mar 29, '24)

Welcome to this week's Volatility Report, a guide for traders and investors seeking to navigate the dynamic world of stock market fluctuations. In this report, we list the expected movements and implied volatility rankings* of stocks with upcoming earnings announcements, as well as key indices and ETFs. In this edition we'll also have a look at some possible trade setups for a selection of ETF's and stocks in the list; S&P 500 Index Weekly (SPXW), Visa (V), Coinbase Global Inc (COIN), Block Inc (SQ).

Important note: the strategies and examples provided in this article are purely for educational purposes. They are intended to assist in shaping your thought process and should not be replicated or implemented without careful consideration. Every investor or trader must conduct their own due diligence and take into account their unique financial situation, risk tolerance, and investment objectives before making any decisions. Remember, investing in the stock market carries risk, and it's crucial to make informed decisions.

Expected moves and volatility

Volatility and Expected Moves Analysis

Expected moves**, derived from at-the-money strike prices post-earnings**, indicate potential price volatility.

In the table above you'll find the following data:

  • Volatility Comparison: Implied volatility (IV) is currently contrasted against the 30-day historical figure to assess market expectations. A significant disparity often marks a prime scenario for premium selling.
  • IV Rank Insights: IV Rank situates the current IV within the past year's range. Values above 20% generally signal higher-than-average volatility, favoring premium selling, while lower values suggest caution for such strategies.
  • IV Rank 5D: IV Rank 5D situates the current IV within the past 5 day's range. Values of 100% indicate that the IV is at it's highest in the last 5 days. A higher value indicates the IV has been rising in the last few days, and might be worth considering to sell premium.
  • Highlighted Stocks:

    The list contains 4 highlighted stocks which each have 3 trade setup ideas (bullish, neutral, bearish). These ideas are listed below.

In this section of our volatility report, we're focusing on three credit and/or debit strategies that align with various market outlooks for our featured indices/etfs/stocks/.... For each underlying, we present a bullish, neutral, and bearish trade setup, designed to match your expectations for the underlying’s future price action.

Think of these strategies as starting points to shape your trading plans. Each setup is flexible – you can adjust the strike prices and the widths of the spreads (set by default at $5) to suit your trading needs. The credit spreads we've chosen are bold, with strike prices set near the current price of the stock to seek higher rewards at increased risk. Feel empowered to place these strikes further away or closer based on your own market analysis and confidence.

Remember, these setups are foundational guides. It’s essential to refine them to fit your individual trading style and outlook, ensuring they support your trading objectives and risk management preferences.

S&P500 Index Weekly's (SPXW)

Here are the trade setups for the S&P 500 Index Weekly (SPXW) for the week of March 25 to March 28, 2024, based on the above screenshot:

Bullish Trade Setup (Put Credit Spread):

  • Selling a 5210 put and buying a 5205 put, both expiring on 28-Mar-2024.
  • Premium received: 130.00 USD.
  • Maximum profit: 130.00 USD, which is the premium received if SPXW stays above 5210 at expiration.
  • Maximum risk: 370.00 USD (the difference between the strike prices minus the premium received).
  • Breakeven: 5208.70 USD (sold put strike minus the premium received).

Neutral Trade Setup (Short Iron Condor):

  • Selling a 5270 call and a 5180 put, and buying a 5275 call and a 5175 put, all expiring on 28-Mar-2024.
  • Net premium received: 160.00 USD.
  • Maximum profit: 160.00 USD, achieved if SPXW closes between the short call and short put strikes at expiration.
  • Maximum risk: 340.00 USD (the difference between the strikes of the widest spread minus the net premium received).
  • Upper breakeven: 5271.60 USD (short call strike plus net premium received).
  • Lower breakeven:  5178.40 USD (short put strike minus net premium received).

Bearish Trade Setup (Put Debit Spread):

  • Selling a 5215 put and buying a 5220 put, expiring on 28-Mar-2024.
  • Premium received: 190.00 USD.
  • Maximum profit: 190.00 USD, realized if SPXW stays below 5220 at expiration.
  • Maximum risk: 310.00 USD (the difference between the strike prices minus the premium received).
  • Breakeven: 5218.10 USD (bought put strike minus premium paid).

For the S&P 500 Index Weekly:

  • The bullish Put Credit Spread is designed for those expecting the index to maintain or increase its current level.
  • The neutral Short Iron Condor is suitable for traders betting on the index trading within a specific range, capitalizing on the decay of option premiums.
  • The bearish Put Debit Spread targets a view that the index will not rise beyond a particular level, or for those seeking a hedge against a potential downturn.

Visa Inc. (V)

Trade setups for Visa Inc. (V) showed in the above screenshot:

Bullish Trade Setup (Put Credit Spread):

  • Selling a 277.5 put and buying a 272.5 put, both expiring on 19-Apr-2024.
  • Premium received: 125.00 USD.
  • Maximum profit: 125.00 USD, which is the premium received if Visa stays above 277.5 at expiration.
  • Maximum risk: 375.00 USD (the difference between the strike prices minus the premium received).
  • Breakeven: 276.25 USD (sold put strike minus the premium received).

Neutral Trade Setup (Short Iron Condor):

  • Selling a 290 call and a 275 put, and buying a 295 call and a 272.5 put, all expiring on 19-Apr-2024.
  • Net premium received: 151.00 USD.
  • Maximum profit: 151.00 USD, achieved if Visa closes between the short call and short put strikes at expiration.
  • Maximum risk: 349.00 USD (the difference between the strikes of the widest spread minus the net premium received).
  • Upper breakeven: 291.51 USD (short call strike plus net premium received).
  • Lower breakeven: 273.49 USD (short put strike minus net premium received).

Bearish Trade Setup (Put Debit Spread):

  • Buying a 275 put and selling a 270 put, expiring on 19-Apr-2024.
  • Premium received: 94.00 USD.
  • Maximum profit: 94.00 USD, realized if Visa stays below 270 at expiration.
  • Maximum risk: 406.00 USD (the difference between the strike prices minus the premium received).
  • Breakeven: 274.06 USD (sold call strike minus premium paid).

For Visa Inc.:

  • The bullish Put Credit Spread is designed for those expecting the stock to not drop below a certain price level.
  • The neutral Short Iron Condor is ideal for scenarios where the stock is expected to remain within a certain range, allowing traders to benefit from time decay and limited price movement.
  • The bearish Put Debit Spread is suitable for those who are pessimistic about the stock's prospects or who wish to hedge against a potential decline.

Coinbase Global, Inc. (COIN)

Trade setups for Coinbase Global Inc. (COIN) based on the above screenshot:

Bullish Trade Setup (Put Credit Spread):

  • Selling a 262.5 put and buying a 257.5 put, both expiring on 19-Apr-2024.
  • Premium received: 215.00 USD.
  • Maximum profit: 215.00 USD, which is the premium received if COIN stays above 262.5 at expiration.
  • Maximum risk: 285.00 USD (the difference between the strike prices minus the premium received).
  • Breakeven: 260.35 USD (sold put strike minus the premium received).

Neutral Trade Setup (Short Iron Condor):

  • Selling a 335 call and a 260 put, and buying a 340 call and a 255 put, all expiring on 19-Apr-2024.
  • Net premium received: 310.00 USD.
  • Maximum profit: 310.00 USD, achieved if COIN closes between the short call and short put strikes at expiration.
  • Maximum risk: 190.00 USD (the difference between the strikes of the widest spread minus the net premium received).
  • Upper breakeven: 338.10 USD (short call strike plus net premium received).
  • Lower breakeven: 256.90 USD (short put strike minus net premium received).

Bearish Trade Setup (Call Credit Spread):

  • Selling a 300 call and buying a 305 call, expiring on 19-Apr-2024.
  • Premium received: 150.00 USD.
  • Maximum profit: 150.00 USD, realized if COIN stays below 305 at expiration.
  • Maximum risk: 350.00 USD (the difference between the strike prices minus the premium received).
  • Breakeven: 301.50 USD (sold call strike plus premium received).

For Coinbase Global Inc.:


  • The bullish Put Credit Spread is suitable for traders who believe the stock will not fall below a specific price level.
  • The neutral Short Iron Condor is for those anticipating the stock to trade within a specified range, profiting from the decay of the options' premiums.
  • The bearish Call Credit Spread is tailored for traders with a negative outlook on the stock, expecting it to stay under a certain level.

Block, Inc. (SQ)

Trade setups for Block Inc. (SQ) based on the above screenshot:

Bullish Trade Setup (Call Debit Spread):

  • Selling a 90 put and buying a 85 put, both expiring on 19-Apr-2024.
  • Premium received: 160.00 USD.
  • Maximum profit: 160.00 USD, which is the premium received if SQ stays above 90 at expiration.
  • Maximum risk: 160.00 USD (the premium paid).
  • Breakeven: 86.60 USD (bought put strike plus the premium paid).

Neutral Trade Setup (Short Iron Condor):

  • Selling a 90 call and a 75 put, and buying a 95 call and a 70 put, all expiring on 19-Apr-2024.
  • Net premium received: 145.00 USD.
  • Maximum profit: 145.00 USD, achieved if SQ closes between the short call and short put strikes at expiration.
  • Maximum risk: 355.00 USD (the difference between the strikes of the widest spread minus the net premium received).
  • Upper breakeven: 91.45 USD (short call strike plus net premium received).
  • Lower breakeven: 73.55 USD (short put strike minus net premium received).

Bearish Trade Setup (Put Debit Spread):

  • Selling a 80 put and buying a 75 put, expiring on 19-Apr-2024.
  • Premium paid: 145.00 USD.
  • Maximum profit: 355.00 USD, realized if SQ stays below 75 at expiration.
  • Maximum risk: 145.00 USD (premium paid).
  • Breakeven: 78.55 USD (bought put strike minus premium paid).

For Block, Inc.:

  • The bullish Call Debit Spread is suitable for traders who believe the stock will not fall below a specific price level.
  • The neutral Short Iron Condor is for those anticipating the stock to trade within a specified range, profiting from the decay of the options' premiums.
  • The bearish Put Debit Spread is tailored for traders with a negative outlook on the stock, expecting it to stay under a certain level.
Note about spread management: as we present our trade setups, it's crucial to address the management of spreads that approach expiration in the money. Whether your position is fully or partially in the money, standard practice recommends closing the trade before expiration. This action is taken to prevent the risk of assignment, which can lead to unintended stock positions and additional capital requirements. Proactive closure of these positions, especially in the final day leading to expiry, allows for better control over the outcome and helps avoid the complexities and potential costs associated with exercise and assignment.
 

* Understanding these metrics is important for anyone involved in volatility-based trading strategies. The 'Expected Move' is an invaluable tool that provides a forecast of how much a stock's price might swing, positively or negatively, around its earnings announcement. This insight is essential for options traders, allowing them to gauge the potential risk and reward of their positions. Read more about it here: Understanding and calculating the expected move of a stock etf index

Moreover, the 'Implied Volatility Rank' (IVR) offers a snapshot of current volatility expectations in comparison to historical volatility over the last year. This ranking helps in identifying whether the market's current expectations are unusually high or low.

In addition to the Expected Move and Implied Volatility Rank, it’s also crucial to understand the concepts of ‘Implied Volatility’ and ‘Historical Volatility’. Implied Volatility (IV) is a measure of the market’s expectation of future volatility, derived from the prices of options on the stock. On the other hand, Historical Volatility (HV) measures the actual volatility of the stock in the past.

The relationship between these two types of volatility can serve as a valuable indicator for options traders. When IV is significantly higher than HV, it suggests that the market is expecting a larger price swing in the future, which could make options more expensive. Conversely, when IV is lower than HV, it could indicate that options are relatively cheap. Some traders use this IV-to-HV ratio as a signal for when to buy or sell options premium, adding another layer of sophistication to their trading strategies.

** A crucial application of the expected move in options trading is evident in strategies such as iron condors and strangles, particularly when these are implemented through short selling. In these strategies, the expected move serves as a pivotal benchmark for setting the boundaries of the trade. For instance, in the case of a short iron condor, traders typically position the short legs of the condor just outside the expected move range. This strategic placement enhances the probability of the stock price remaining within the range, thereby increasing the chances of the trade's success. Similarly, when setting up a short strangle, traders often choose strike prices that lie beyond the expected move. This ensures that the stock has to make a significantly larger move than the market anticipates to challenge the position, thus leveraging the expected move to mitigate risk and optimize the success rate. Utilizing the expected move in this manner allows traders to align their strategies with market expectations, fine-tuning their approach to volatility and price movements.

In this report, the calculation of the expected move for each stock and index is based on a refined approach, building upon the concepts outlined in our previous article. Traditionally, the expected move can be estimated by calculating the price of an at-the-money (ATM) straddle for the expiration date immediately following the event of interest. However, in this analysis, we've adopted a variation to enhance the accuracy of our predictions.

Our method involves a blend of 60% of the price of the ATM straddle and 40% of the price of a strangle that is one strike away from the ATM position. This hybrid approach allows us to closely mirror the expected move as indicated by the implied volatility (IV), offering a more nuanced and precise estimation. By utilizing this simplified yet effective method, we are able to provide an expected move calculation that not only resonates with the underlying market sentiments but also equips traders with a practical tool for their volatility-based strategies.

For continuous insights and updates on market/options strategies, interact with me/follow my social media account on Threads.

Previous "Volatility reports": 

Previous episodes of the "Saxo Options Talk" podcast

Previous "Investing with options" articles: 

Previous "What are your options" articles: 

Related articles:

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