Wednesday, November 30, 2016

Thursday's Prospects

Screening of the Wednesday, Nov. 30 markets identified seven prospective high options volatility trades.

I would normally make final trading decisions on Thursday, Dec. 1. However, I've previously passed or presently hold all of them.

Six prospects have sufficiently high implied volatility to qualify for further analysis:

TBT
TLT
XLU
FXE
GDXJ

I hold position on TLT and FXE and have passed on the rest.

Two are close to having sufficiently high volatility to qualify.

COST
UNG

I previously passed on both.

I shall also consider trades posted on Dough as part of my current learning project.

I have suspended work on my small lots shares approach through December until I determine how to move forward, given the poor trading results of July through October. See Small Lots Approach: Analysis 7/2016 through 10/2016.


-- Tim Bovee, Portland, Oregon, Nov. 30, 2016


The Upside of Inequality: How Good Intentions Undermine the Middle Class
by Edward Conrad


Wednesday's Outcomes

I entered a highly skewed iron condor position on SPX modeled after a trade posted on Dough.

By Tim Bovee, Portland, Oregon, Nov. 30, 2016


The Volatility Smile (Wiley Finance)
by Emanuel Derman and Michael B. Miller

SPX Analysis

S&P 500 Index (SPX)

This iron condor trading idea and structure come from trader Fauzia at Dough.

My normal practice centers the iron condor on the present price. Her trade sets the high end of the profit zone near the current price, and the low end below it. Fauzia made no comment on her trade, but clearly the structure anticipates a trading zone stretching $100 below today's level. a decline in the S&P 500.

And that's a reasonable expectation. The Trump bump in the markets has brought SPX up from 2084 to 2214. Fauzia's trade presumes a pullback that remains above resistance.

The high delta at the upper boundary increases the chance that the position will fail if the price rises, and yet also increases the credit I get for the trade. It's the classic risk/reward ratio embodied in the folk wisdom, "Risk is the mother of profit." This position is a big shout-out to Mom.

Like Fauzia, I shall use the JAN series of options, which trades for the last time 50 days hence, on Jan. 20.

Implied volatility stands at 14%, which stands in the 15th percentile of its annual range. The price used for analysis was $2,203.62.

Iron condor, short the $2,200 calls and long the $2,220 calls,
short the $2,100 puts and long the $2,080 puts,
sold for a credit and expiring Jan. 21.
Probability of expiring out-of-the-money

JANStrikeOTMΔ
Upper220048.3%53
Lower210079.5%19

The premium is $13.80, which is 69% of the width of the position’s wings.

The risk/reward ratio is 0.45:1.

Decision for My Account

I have entered a position on SPX as described above. The stock at the time of entry was priced at $2,202.77.

-- Tim Bovee, Portland, Oregon, Nov. 30, 2016


Heads I Win, Tails I Win: Why Smart Investors Fail and How to Tilt the Odds in Your Failure
by Spencer Jakab


Wednesday's Agenda

I have no plans to enter new positions based on my own screening.

I'll keep an eye on trades posted on Dough and shall analyze those that I find interesting as part of my learning project . None have been posted so far today (as of 10:40 a.m. New York time).

See Wednesday's Prospects for a discussion of qualifying trades I'm rejecting without further analysis.

By Tim Bovee, Portland, Oregon, Nov. 30, 2016


FinTech Innovation: From Robo-Advisors to Goal Based Investing and Gamification
by Paolo Sironi

Tuesday, November 29, 2016

Wednesday's Prospects

Screening of the Tuesday, Nov. 29 markets identified six prospective high options volatility trades.

I shall make final trading decisions on Wednesday, Nov. 30.

Two prospects have sufficiently high implied volatility to qualify for further analysis:

FXE
GDXJ

I hold a position on FXE.

Four are close to having sufficiently high volatility to qualify.

COST
TBT
TLT
UNG

I hold a position on TLT. 

I have previously rejected COST because of approaching earnings, GDXJ and UNG because of political influences on the underlying commodities and TBT as conflicting with another holding.
I shall also consider trades posted on Dough as part of my current learning project.

I have suspended work on my small lots shares approach through December until I determine how to move forward, given the poor trading results of July through October. See Small Lots Approach: Analysis 7/2016 through 10/2016.


-- Tim Bovee, Portland, Oregon, Nov. 29, 2016


Capitalism’s Crisis Deepens: Essays on the Global Economic Meltdown
by Richard D. Wolff


Tuesday's Agenda

My most interesting prospect of the day, an options volatility play on COST, will have to wait. Volatility is not quite high enough, but it's getting there. Moreover, the company publishes earnings on Dec. 7, and I prefer to wait until closer to the announcement before entering a position.

The other prospects are the same old gang: Interest rates (TLT and TBT), fossil fuels (UNG) and gold (GDXJ). I already have exposure on TLT, and am waiting on fossil fuels until the major producing countries figure out what they want to do on production levels.

I've lost interest in GDXJ on technical grounds -- a very wide bid/ask spread. I'll revisit it if I can find a way to make it work, but I'm staying out for now.

I'll be keeping an eye on trading ideas posted today on Dough and shall follow through on those that interest me as part of my learning project.

By Tim Bovee, Portland, Oregon, Nov. 29, 2016


The Rise and Fall of American Growth
by Robert J. Gordon

Monday, November 28, 2016

Tuesday's Prospects

Screening of the Monday, Nov. 28 markets identified six prospective high options volatility trades.

I shall make final trading decisions on Tuesday, Nov. 29.

Four prospects have sufficiently high implied volatility to qualify for further analysis:


FXE
GDXJ
TBT
UNG

I hold a position on one of the four, FXE.

Two are close to having sufficiently high volatility to qualify.


COST
TLT

I hold a position on TLT.

I shall also consider trading posted on Dough as part of my current learning project.

I have suspended work on my small lots shares approach through December until I determine how to move forward, given the poor trading results of July through October. See Small Lots Approach: Analysis 7/2016 through 10/2016.


Odds On: The Making of an Evidence-Based Investor
by Matt Hall


-- Tim Bovee, Portland, Oregon, Nov. 28, 2016


TLT Analysis Updated

I have updated today's TLT Analysis post with an extended discussion of what the interesting trade structure is, how it makes money and when to use it.


The Ultimate Algorithmic Trading System Toolbox
by Georhe Pruitt

Monday's Outcomes

I entered options volatility positions on FXE, EWZ and TLT all of which were trading ideas from Dough.

I exited a shares position on EVLV. It was an earnings bull play that gapped down sharply after the company missed earnings expectations. I held onto it a few days lower to take advantage of any immediate rebound. See Monday's Small Lots.

By Tim Bovee, Portland, Oregon, Nov. 28, 2016


This Brave New World: India, China and the United States
by Anja Manuel

TLT Analysis

iShares Barclays 20+ Year Teasury Bond ETF (TLT)

The trading idea came from Fauzia at Dough. I've never seen an iron condor structured this way, with a identical shorts on both calls and puts, with extremely wide wings. It's basically a straddle with defined risk. Most iron condors are strangles with risk defined.

Implied volatility on Fauzia's trade is a bit below my minimum requirement of the 50th percentile or higher of the annual range.


I shall use the DEC30 series of options, which trades for the last time 32 days hence, on Dec. 30.

Implied volatility stands at 16%, which is in the 48th percentile of its annual range. The price used for analysis was $121.52.

Iron condor, short the $121 calls and long the $128.50 calls,
short the $121 puts and long the $114.50 puts,
sold for a credit and expiring Dec. 31.
Probability of expiring out-of-the-money

JANStrikeOTMΔ
Upper12148.4%54
Lower12148.4%54

The premium is $3.69, which is 49% of the width of the position’s wings.

The risk/reward ratio is 1:1.

Decision for My Account

I've entered a position on TLT as described above. The stock at the time of entry was priced at $121.523.

Further analysis after the closing bell

After the closing bell I sat down and tried to understand Fauzia's interesting trade structure. She included no comment explaining her motivations or reasoning.

So let's take some back bearings. The big event looming before us all is the December meeting of the Federal Open Market Committee, a two day session with an announcement Wednesday, Dec. 14, on whether or not the money policy body will raise interest rates.

The market for TLT, a fund composed of government bonds, will be impacted by the decision. Market pricing suggests strong expectations that rates will be raised.

I infer from the calendar of events that Fauzia expects TLT to remain within a tight range between now and the FOMC announcement.

That explains the narrow spread between the short calls and short puts, the space that defines the zone of profit. Since both are a $121, Fauzia's trade structure has no zone of maximum profit except for one price point -- $121. So we must look elsewhere for the money-making potential of this trade.

The answer, of course, is time decay. The trade is structured so that the net short positions gains value with increasing magnitude each passing day It was only 32 days until expiration when the trade was placed. Expiration happens a bit more than two weeks after the FOMC announcement.

That being so, the profit will come from the high premium, $3.69 before fees, and the trader's expectation is that the value of the debit need to exit the trade will be less than $3.69. That difference -- $3.69 minus the exit debit -- is where the profit is.

Where does that happen? At the long wings, of course. And they are very wide, $7.50 in either direction. The trade can take a 6.2% move either way and still be profitable.

I feel quit confident that Fauzia's intent is to exit before the FOMC announcement.

The fact that the premium is 49% of the wings means that this is an extreme verson of an iron condor variation known as the chicken iron condor. See an 11 minute video explaining the trade here.

One oddity. The video suggests using chicken iron condors to play earnings announcements because they provide such a wide zone of profit. TLT as a bond ETF has no earnings announcements. But when I think it over, an FOMC interest range announcement is an close to earnings as we'll get with a fund like ETF.

-- Tim Bovee, Portland, Oregon, Nov. 28, 2016


Power Scalper - Day Trade for a Living: Make Living Day Trading
by Jerome E. Bressert

EWZ Analysis

iShares MSCI Brazil Index (EWZ)

The trading idea comes of Ryan at Dough, who earned a 1.60 credit. The position diverges from my guidelines in that expiration is less than 30 days away. The implied volatility is also lower than my 50th percentile requirement. The width of iron condor is also narrower than what I usually allow. Let's see how it works.

I shall use the DEC series of options, which trades for the last time 18 days hence, on Dec. 17.

Implied volatility stands at 38%, which is in the 31st percentile of its annual range. The price used for analysis was $34.07.

Iron condor, short the $34 calls and long the $36.50 calls,
short the $34 puts and long the $31.50 puts,
sold for a credit and expiring Dec. 17.
Probability of expiring out-of-the-money

DECStrikeOTMΔ
Upper3477.8%52
Lower31.582.6%25
The premium is $1.61, which is 64% of the width of the position’s wings.

The risk/reward ratio is 0.6:1.

Decision for My Account

I have placed an order on EWZ as described above. The stock price at entry was $34.06,

-- Tim Bovee, Portland, Oregon, Nov. 28, 2016


Weapons of Math Destruction: How Big Data Increases Inequality and Threatens Democracy
by Cathy O'Neil

Monday's Small Lots

I exited one shares position under my small lots approach.


symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtotal divstactic
EVLV1011/21/201611/28/20162.101.74-0.36-20.69%-1079%7earns


By Tim Bovee, Portland, Oregon, Nov. 28, 2016


Foundations of Trading: Developing Profitable Trading Systems using Scientific Techniques
by Dr. Howard B. Bandy

FXE Analysis

Guggenheim CurrencyShares Euro Trust (FXE)

The source of the trading idea was Aaron on Dough, who entered the position on Friday. The stock differs from my normal guildelines in that it has average volume below 3 million shares per day.

I shall use the JAN series of options, which trades for the last time 53 days hence, on Jan. 20.

Implied volatility stands at 11%, which is in the 60th percentile of its annual range. The price used for analysis was $102.93.

Aaron's trade was short the $107 calls and long the $100 puts, a $6 wide covered call with $2 wings. He earned a $0.69 credit.

The stock price has fallen slightly since Aaron's trade. I would structure it this way, sacrificing a dollar in width and skewing slightly toward the downside, the direction of the trend.

Iron condor, short the $105 calls and long the $107 calls,
short the $100 puts and long the $98 puts,
sold for a credit and expiring Jan. 21.
Probability of expiring out-of-the-money

JANStrikeOTMΔ
Upper10670.2%31
Lower10076.0%23

The premium is $0.70, which is 35% of the width of the position’s wings.

The risk/reward ratio is 1.9:1.

Decision for My Account

I've entered a position on FXE as described above. The stock at the time of entry was priced at $102.99.

-- Tim Bovee, Portland, Oregon, Nov. 28, 2016


The New Market Wizards: Conversatons with America’s Top Traders
by Jack D. Schwager

Monday's Agenda

I shall be looking a FXE today as a potential volatility play.

I'm rejecting GDXJ, TBT and TLT as potential volatility plays because of the specialized nature of their underlyings: GDXJ is gold, and both TBT and TLT are long-term U.S. Treasuries, both of which are responding to political events in the wake of the U.S. elections. Stocks, by contrast, are a more complex arena.

All of my shares prospects pulled back today, disqualifying them from further consideration.

I noted C, along with FXE, as trades I would look at as a results of trades posted on the education site Dough, which I will be tracking as a learning project.

I'm rejecting C because the rationale for the trade was based on political events. I'm all about the calculable odds, something generally beyond the grasp of politics.

FXE, as I noted above, is still of interest, and I shall post a full analysis soon using a changed format.

I shall look at trades posted today on Dough and analyze them as warranted.

See Monday's Prospects for more.

By Tim Bovee, Portland, Oregon, Nov. 28, 2016


Saving Capitalism: For the Many, Not the Few
by Robert B. Reich

Sunday, November 27, 2016

The Week Ahead: GDP, Jobs, Income and Manufacturing

Two potentially game-changing reports bookend the markets this week: GDP on Tuesday and jobs on Friday.

The first estimae of gross domestic product for the 3rd quarter will be published on Monday at 8:30 a.m. New York time.The employment report is out on Friday, also at 8:30 p.m.

Together they answer two questions: How's the economy doing and are those results translating into jobs for working Americans? The GDP report also includes the inflation measure most important to the Federal Open Market Committee in managing the nation's money.

The employment report gets  preview on from the privately produced ADP employment report on Wednesday at 8:15 a.m.

Other important reports released during the week: Personal income and outlays on Wednesday at 8:30 a.m., the Institute of Supply Management manufacturing survey on Thursday at 10 a.m.

Leading indicators (in descending order of importance):

The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.

The M2 money supply, at 4:30 p.m. Thursday.

The average hourly workweek in manufacturing from the employment report at 8:30 a.m. Friday.

Vendor performance, or the deliveries time index, from the ISM manufacturing survey.
The S&P 500 index, reported continually during market hours.

Average weekly initial claims for unemployment from the jobless claims report at 8:30 a.m. Thursday.



Candlestick Charting Techniques
by Steve Nison

Saturday, November 26, 2016

Monday's Prospects

Screening of the Friday, Nov. 25 markets identified eight prospective trades.

I use four strategies in my trading, in response to trading signals (such as breakouts above the 20-day price channel), high implied options volatility, and persistently rising trends on a charts signaled by the stochastic-relative strength index indicator, and in anticipation of events ( such as earnings announcements).

 options  shares 
price channelN/AN/A
earnings00
volatility3N/A
stochastic-rsiN/A5

I shall make final trading decisions on Monday, Nov. 28.


Foundations of Trading: Developing Profitable Trading Systems using Scientific Techniques
by Dr. Howard B. Bandy


Below are the candidates for analysis for each type of analysis.

Friday, November 25, 2016

Friday's Outcomes

I made no trades during this shortened post-holiday market session.

By Tim Bovee, Portland, Oregon, Nov. 25, 2016


A Field Guide to Lies: Critical Thinking in the Information Age
by Daniel J. Levitin

Friday's Agenda

Neither of the two prospects on my desk qualifies for trading.this morning. See Friday's Prospects.

By Tim Bovee, Portland, Oregon, Nov. 25, 2016


Saving Capitalism: For the Many, Not the Few
by Robert B. Reich

Wednesday, November 23, 2016

Friday's Prospects

Screening of the Wednesday, Nov. 23 markets identified two prospective trades.

I use four strategies in my trading, in response to trading signals (such as breakouts above the 20-day price channel), high implied options volatility, and persistently rising trends on a charts signaled by the stochastic-relative strength index indicator, and in anticipation of events ( such as earnings announcements).

 options  shares 
price channelN/AN/A
earnings00
volatility0N/A
stochastic-rsiN/A2

I shall make final trading decisions on Friday, Nov. 25.


Shoe Dog: A Memoir by the Creator of Nike
by Phil Knight


Below are the candidates for analysis for each type of analysis.

Wednesday's Small Lots and Outcomes

I exited two shares positions on Wednesday under my small lots approach.

symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtotal divstactic
LVS311/18/201611/23/201660.6162.131.522.45%179%5rsi-80
MPEL1111/18/201611/23/201618.9019.120.221.15%84%5rsi-80

Enjoy the holiday on Thursday. The markets will re-open on Friday for a shortened session, ending at 1 p.m. New York time.

By Tim Bovee, Portland, Oregon, Nov. 22, 2016


Misbehaving: The Making of Behavioral Economics
by Richard H. Thaler

Earns Prospects 11/28-12/2

Out of 94 companies publishing earnings the week of Nov. 28 through Dec. 2, only one qualifies for a further look as an options trade.


actionsymearns dateam/mid/pm
11/30KR12/1am

With the end of earnings season on Nov. 22 I have suspended further analysis of earnings plays using my small lots approach. See Small Lots Approach: Analysis 7/2016 through  10/2016 for my reasoning.

By Tim Bovee, Portland, Oregon, Nov. 22, 2016


Progress and Confusion: The State of Macroeconomic Policy
by Olivier Blanchard et al.

Wednesday's Agenda

My one prospect for the day fails to qualify for trading, so I've got nothing on my desk in the way of new positions. See Wednesday's Prospects.

By Tim Bovee, Portland, Oregon, Nov. 22, 2016


The Upside of Inequality: How Good Intentions Undermine the Middle Class
by Edward Conrad

Tuesday, November 22, 2016

Wednesday's Prospects

Screening of the Tuesday, Nov. 22 markets identified one prospective trade.

I use four strategies in my trading, in response to trading signals (such as breakouts above the 20-day price channel), high implied options volatility, and persistently rising trends on a charts signaled by the stochastic-relative strength index indicator, and in anticipation of events ( such as earnings announcements).

 options  shares 
price channelN/AN/A
earnings00
volatility0N/A
stochastic-rsiN/A1

I shall make a final trading decision on Wednesday, Nov. 23.


Raising the Floor: How a Universal Basic Income Can Renew Our Economy and Rebuild the American Dream
by Andy Stern


Below is the candidate for analysis.

Tuesday's Small Lots and Outcomes

I exited three shares positions using my small lots approach.

symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtotal divstactic
BURL211/21/201611/22/201677.3786.008.6310.03%3663%1earns
MGM711/21/201611/22/201628.9628.61-0.35-1.22%-447%1rsi-80
MS511/18/201611/22/201640.3240.22-0.10-0.25%-23%4rsi-80

EVLV fell sharply after earnings were published, but given the magnitude of the fall I'm anticipating a partial retracement and so am continuing to hold the position for now.

By Tim Bovee, Portland, Oregon, Nov. 22, 2016


A Complete Guide to Volume Price Analysis
by Anna Coulling

Small Lots Approach: Analysis 7/2016 through 10/2016

With 158 completed trades under my belt from July 25, 2016 through October 2016, I think there's enough data to begin to draw some conclusions about how successful the small lots approach has been.

The approach was an experiment, something I had been unable to try before because trades carried fees, setting practical limits on the size of a trade and the length of time it must be held.

The idea behind the small lots approach is to use a no-fee brokerage, Robinhood Markets in my case, for quick trading of shares, thereby increasing diversification and gaining and entry into small- and mid-caps trading that is denied me by my options strategies. Robinshood allows only bull plays -- there is no provision for short sales.

I rely in part on the stock analysis company Zacks Investment Research in choosing what to trade.

I described the approach in a July 25 post, Small Lot Trading: A New Strategy.

I initially began with a trend tactic, simply looking for breakouts on the chart. I then abandoned that approach, moving to a diversified approach using these tactics:
  • Channel. The classic Turtle Trading method, using a 20-day price channel breakout. The original Turtle Trading rules may be read here as a pdf file.
  • Earns. Positions entered the day before an earnings announcement.
  • Stochastic Relative Strength Index. The Stochastic RSI comes in two flavors, breakouts or upward trends near the 20% line and near the 80% line. They are abbreviated in the spreadsheets as rsi-20 and rsi-80.
  • Dividend. A so far little-used dividend flipping strategy, where I entered a position a month before the dividend and then exit once the price has returned to the entry level or higher.
For the Channel tactic, I require that more than half of channel breakouts over the past year to have been profitable. This weeds out the dreaded whipsaws.

For the Earns, Stochastic RSI and Dividend tactics, I require a bullish rank (1 or 2) from Zacks and in addition a beta of 1.5 or more, or -1.5 or less. The beta requirement suggests that the stock will move sufficiently to make the trade worthwhile.

For the Earns tactic, I also require that Zacks Earnings Surprise Prediction be positive. 

For the Stochastic RSI tactics, I require that the price be within a six point range and uptrending on the one-month chart. For the rsi-20, the range is 18% to 24%. For the rsi-80, the range is 76% to 82%.

And now, the results, with all yields in percentages.


Rise of the Robots: Technology and the Threat of a Jobless Future
by Martin Ford


Tuesday's Agenda

I'm unhappy with the charts of all four of today's prospects, which are shares trades using my small lots approach.

I'm rejecting them all, and plan to enter no new positions today.

By Tim Bovee, Portland, Oregon, Nov. 22, 2016


The Social Organism: A Radical Understanding of Social Media to Transform Your Business and Life
by Alex Cuadros

Monday, November 21, 2016

Tuesday's Prospects

Screening of the Monday, Nov. 21 markets identified four prospective trades.

I use four strategies in my trading, in response to trading signals (such as breakouts above the 20-day price channel), high implied options volatility, and persistently rising trends on a charts signaled by the stochastic-relative strength index indicator, and in anticipation of events ( such as earnings announcements).

 options  shares 
price channelN/AN/A
earnings00
volatility0N/A
stochastic-rsiN/A4

I shall make final trading decisions on Tuesday, Nov. 22.


The Rise and Fall of Nations: Forces of Change in the Post-Crisis World
by Ruchir Sharma


Below are the candidates for analysis for each type of analysis.

Monday's Outcomes

I entered three shares positions -- BURL, EVLV and MGM -- and exited one -- NM. See Monday's Small Lots for details.

By Tim Bovee, Portland, Oregon, Nov. 21, 2016


The Intelligent Investor
by Benjamin Graham

Monday's Small Lots

I've entered three new shares positions using my small lots strategy.


symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtotal divstactic
BURL211/21/201677.37earns
EVLV1011/21/20162.10earns
MGM711/21/201628.96rsi-80

I've exited one position.


symsharesentry dateexit dateentry price per shareexit price per shareresult $result %annual ratedays heldtotal divstactic
NM11611/18/201611/21/20161.731.67-0.06-3.59%-437%3earns

By Tim Bovee, Portland, Oregon, Nov. 21, 2016


Risk-Return Analysis: The Theory and Practice of Rational Investing (Volume One)
by Harry R. Markowitzh et al.


Risk-Return Analysis: The Theory and Practice of Rational Investing (Volume Two)
by Harry R. Markowitzh et al.