Covered (Commodity) Calls: USO, GOLD, RILY

Moving time and strike parameters based on opportunity

Setting the Table:

• As expected, yesterday’s session was a low volume snoozer with little movement- less than 41M contracts traded hands and SPX/NDX were basically flat. 

• The volatility surface at 30 days in SPY looks nearly identical to Friday’s close. Overall, we are very slightly higher ATM, and I would attribute most of that to the event vol around this week’s CPI release.

  

  • We can see the straddle prices have barely decayed at all over the weekend either. Looking at Wed/Thur/Friday expirations in SPY, there has been only minor price decay. SPY sees a lot of the move coming from CPI on Wednesday, but jobless claims on Thursday should also have an impact. The weekly move is currently expected to be just under 2% of spot.

    

• The WSJ’s Mackintosh said it yesterday, and today Bloomberg’s Authers confirms that “all eyes are on CPI.” The market is expecting a very aggressive cutting dynamic over the course of 2025.

  

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• LIQ exploded yesterday in RILY, but not for a particularly good reason. For the third quarter in a row they missed their quarterly filing deadline, and stock was down more than 50%. 

  • N.B. This LIQ is entirely driven by volume. 142k contracts yesterday is more than 5x the recent average volume. Spreads are still VERY wide in vol terms - like 40% wide. 

• While the high vol here has often been a good sale in put space - they’ve tested $15 many times the past year but only broke it yesterday - here we’re looking at the calls. 

• Stock is already down another 10% this morning, so you’ll need to recalibrate once the market opens, but pulling in days to expiration and delta makes sense here. Once you get over 200% vol, with a landmine field of events ahead, it makes sense to think in dollar terms. 

  • By selling the ATM calls, you can collect 8/15/24% of the stock prices premium just to see it stay stable. 

  • While Max Returns go up quickly at each successive strike, remember you’re leaning increasingly towards a delta play here. Do you really think this rebounds strongly?