M Analysis

Update 8/22/2015: My M calls expired Saturday. Shares fell 10.1% over nine days, or a -410% annual rate. The options produced a 45.7% yield on debit for a +1,851% annual rate.

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Update 8/19/2015: M moved to the lower edge of the profit zone and I've exited the puts, turning the iron condor into a bear call spread.

I'll calculate profit and loss when the calls expire on Saturday, wrapping up the entire position.

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Update 8/11/2015: I've opened a position in M structured as described below.

The premium is $0.67 which is 22% of the width of the position’s wings. The stock at the time of entry was priced at $67.66.

The risk/reward ratio is 3.4:1.

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The department store chain Macy's Inc. (M), headquartered in Cincinnati, Ohio, publishes earnings on Wednesday before the opening bell.

[M in Wikipedia]

M

I shall use the AUG monthly series of options, which trades for the last time 10 days hence, on Aug. 21.

Ranges

Click on chart to enlarge.

M after July 10 close, 30 days hourly bars

Implied volatility stands at 33.2%, which is 2.7 times the VIX, a measure of volatility of the S&P 500 index. M’s volatility stands in the 98th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	71.09	74.79	73.61	70.67
Lower	63.67	59.97	65.53	64.09
Gain/loss	5.5%	11.0%

Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move
The Trade

Iron condor, short the $71 calls and long the $74 calls,
short the $62.50 puts and long the $59.50 puts,
sold for a credit and expiring Aug. 22.
Probability of expiring out-of-the-money

AUG	Strike	OTM
Upper	71	80.2%
Lower	62.5	83.73%

The premium is $0.55 which is 18% of the width of the position’s wings.The stock at the time of analysis was priced at $67.38.

The risk/reward ratio is 4.5:1.

The zone of profit in the proposed trade covers a $4.25 move either way. The biggest immediate move after each of the past four earnings announcements was $3.29, and the average was $2.48.

Decision for My Account

I'm posting this analysis prior to the market open on Tuesday because I'm trading from East Asia. The time difference pushes the U.S. market day into the depths of night. I'll attempt the trade as described above, adjusting to meet market conditions on Tuesday, and shall update this analysis with my final decision.

-- Tim Bovee, Fukuoka, Japan, Aug. 11, 2015

References

My volatility trading rules can be read here.


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Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License



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Based on a work at www.timbovee.com.