Thursday, December 11, 2014

Thursday's Finalists: RYL, ADBE

The California homebuilder Ryland Group (RYL) was the one symbol to survive the later rounds of analysis. The stock gave a bear signal on Wednesday. (See "Thursday's Prospects",)

The trade was confirmed, as the price remained beyond the 20-day price channel. The chart is bearish, Open interest on options is high. The front-month at-the-money bid/ask spread on 10% exactly, just beyond the margin of what's acceptable, yet not so far beyond as to preclude fudging.

The problem is one of lost opportunity cost.  RYL has high implied volatility, making it eligible for one of the short-term trades that are my preference these days.

However, it has no Weeklys in its options inventory, leaving me with two choices.

The December monthly issue, expiring Dec. 19, has an open interest distribution that makes it impossible to construct a trade.

The January issue, expiring Jan. 15, has a fine open interest distribution. However, the company publishes earnings on Jan. 29. If RYL's behavior is typical, volatility will stay high until the announcement, and then collapse.

That being the likely scenario, my highest probability strategy will be to wait until last trading opportunity before the earnings announcement, and then open a very short term volatility play.

I shall follow the high-proabllity course of action -- no surprise there -- and won't be doing further analysis on RYL today.

ADBE publishes earnings after the closing bell today, and I shall post an analysis within the next hour or so.

-- Tim Bovee, Portland, Oregon, Dec. 11, 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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