Thursday, December 18, 2014

Thursday's Finalists: NPSP, PAY, DRE, O, NKE, RHT, KMX

Four of the six symbols that gave trading signals on Wednesday, all to the bull side, have made it to the finals: NPSP, PAY, DRE and O. (See "Thursday's Prospects".)

One of the six, ZLTQ, failed confirmation, and another, NNN, while confirming the signal, showed strong contrarian momentum.

NPSP has a chart that is insufficiently bullish to support a trade.

PAY has a bullish chart but it is just short of a true breakout beyond resistance.

DRE and O have low open interest, making it impossible build a hedged, leveraged position out of options, and also have low implied volatility, barring me from my preferred strategy these days: options spreads sold for a credit and expiring in the front month, or earlier if weeklys are available.

No signals from Thursday's markets meet my criteria, and I plan no trade off of today's Prospects list.

Turning now to volatility plays keyed to earnings announcements, I see three possibilities: NKE and RHT, which publish earnings after the closing bell today, and KMX, which publishes before the opening bell on Friday.

All three have implied volatility that is in a high percentile of the range of the prior rise, KMX in the 90s, NKE in the 80s and RHT in the high 70s.

The volatility on all three has hooked downward from a recent peak, the ideal pattern for trades that rely on collapsing implied volatility following an earnings announcement.

All three have clear intra-day momentum of the past few days.

The only differentiation among the three lies in the options inventories. NKE has weeklys, allowing me to construct a trade that expires in 15 days, almost perfectly matching my preferred two-week lifespan.

RHT and KMX have monthly issues only; the best trade I can build from their inventories expires in 29 days, more than double the idea. lifespan.

That is enough to push NKE into the preferred position, and I shall post an analysis prior to the closing bell.

-- Tim Bovee, Portland, Oregon, Dec. 18, 2014


My shorter-term trading rules can be read here. My longer-term trading rules can be read here. And the classic Turtle Trading rules on which my rules are based can be read here. My volatility trading rules can be read here.

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.

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