Saturday, January 31, 2015

Saturday's Outcomes

Two of my positions expired out of the money on Saturday, for maximum profit. Both were volatility plays timed to coincide with earnings announcements. I've updated the analyses -- IBM and SLB -- with results.

My Outcomes post a week ago, which can be read here, as well as the original analysis and an update incorrectly identified the SLB expiration as Jan. 24. It was Jan. 31, and I have corrected the error throughout.

References

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.


Alerts


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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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Friday, January 30, 2015

XOM: Volatility play

Update 2/4/2015: Oil prices reversed to the upside and XOM shares rose by 4.4% over the six-day lifespan of the position, for a 270% annual rate. The options produced a 238.5% loss on debit, a -14,506% annual rate.

The global oil and gas company ExxonMobil Corp. (XOM), headquartered in Irving, Texas, publishes earnings on Monday, Feb. 2, prior to the opening bell.

XOM has Weeklys among its options inventories, and I shall trade the FEB1 series of options, which trades for the last time on Feb 6, seven  days hence.

[XOM in Wikipedia]

XOM

Volatility

Implied volatility stands at 29%, in the 66th percentile of the rise from 21% on Dec. 23, 2014  to 32% on Jan. 14.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Upper91.7595.2491.94
Lower84.7981.3086.03
Gain/loss4.0%7.9%
Implied volatility 1 and 2 standard deviations; chart support and resistance

Direction

Click on chart to enlarge.
XOM at 10:30 a.m. New York time, 30 days hourly bars
XOM has been in a downtrend since July 2014, coinciding with a collapse in petroleum values that has chopped crude prices by more than half. The decline has continued in the month leading up to the earnings announcement.

The price began to rise on Thursday and has continued its upward course into Friday.

The directional score, based on the chart and analyst ratings, is negative 4, arguing for a bear position. I shall structure my trade as a bear call spread.

The Trade


Bear call spread, short the $90 calls and long the $91 calls
sold for a credit and expiring Feb. 7
Probability of expiring out-of-the-money

FEB1Strike%
9073.1

The risk/reward ratio stands at 57:200, or a bit less than 3:1.

Decision for My Account

I've opened a bear position in XOM as described above. In order to get a reasonable premium, I had to leave $1.26 of the chart range outside of the zone of maximum profit at expiration, as well as $1.49 of the one standard deviation range. However, the probability of a profitable trade is high enough to theoretically mitigate the impact.

-- Tim Bovee, Portland, Oregon, Jan. 30, 2015

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

The directional score is calculated as the sum of the following:
  • Zacks rating --The Zacks ratings are translated as follows: 1=2, 2=1, 3=0, 4=-1 and 5=-2.
  • Enthusiasm rating --: A single percentage derived from the number of analysts whose opinions are in one of five categories: Strong buy, buy, hold, sell and strong sell.
  • Strong buy share -- The percentage of all analysts who rank the stock strong buy. If the share is 60% or greater, the score is 1; if 40% or less, then the score is -1; otherwise, the score is zero.
  • Ethusiasm momentum -- The score is 1 if today’s enthusiasm rating is larger than the rating 30 days earlier; otherwise, the score is zero.
  • 30-day direction -- The trend that best describes the 30-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.
  • One-day direction -- The trend that best describes the one-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.


From time to time I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.



Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Friday's Prospects

On Thursday, Jan. 29:

Of 1,189 stocks and exchange-traded funds in my analytical universe, 16 broke beyond their 20-day price channels, two to the upside and 14 to the downside.

One symbol survived initial screening, having broken out to the downside. It gave a bear signal on the first trading day after earnings were published, putting it under special rules.

No symbols appearing on my supplemental list of innovative companies gave a bull signal and also met my earnings announcement rules.

There is one prospect for a trade keyed to earnings under my Volatility Rules.

I shall do further analysis on Friday, Jan. 30.

The next earnings season began Jan. 12, with the announcement by AA and runs six weeks. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening. The rule doesn't apply to trades under my Volatility Rules.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.


Bull
(none)

Bear
(none)
Innovators
(bull)
(none)


First-round survivors: Special handling

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull earns
(none)
Bear earns
HP
Bull ex-div
(none)
Bear ex-div
(none)


Potential trades under my Volatility Rules, keyed to events

The dates are those of the events, all of them earns announcements. Events prior to the opening bell are marked "am", during the trading day "mid", and after the closing bell "pm". The lists are sorted in descending order by average volume.

Today pm
(none)
Monday am
XOM


Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Jan. 30, 2015

References

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

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 decision decisions for his or her own account, and take responsibility for the consequences.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss'ss

Thursday, January 29, 2015

Thursday's Finalists

MCD was the one survivor of the early screening to be in play today. The other, HES, came under the special earnings rules that delay consideration.

However, MCD failed to confirm its bear signal, instead gapping upward after the fast-food chain announced it is replacing its CEO.

I plan to open no positions based on on Wednesday's markets.

AAPL on my innovators list gave a bull signal and confirmed it today. But that's no trade for me. I already own shares under my longer-term rules and just a day earlier completed a very short term volatility play coinciding with earnings. I plan no further analysis or trades on AAPL today.

I have opened earnings plays on AMZN, GOOGL and MA. See the analysis here.

-- Tim Bovee, Portland, Oregon, Jan. 29, 2015

References

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.



Alerts


Two social media feeds provide notification whenever something new is posted.
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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

AMZN, GOOGL, MA: Volatility plays

Update 2/7/2015: MA expired out of the money on Feb. 8 for maximum profit.

The share price rose by 3.9% over the nine-day lifespan of the position, or an annual rate of 159%. My options position produced a 100% yield on debit, for a 4,056% annual rate.

Update 2/4/2015: AMZN shares rose by 21.5% over the six-day lifespan of the position, for a 1,307% annual rate. The options produced a 281.8% loss on debit, a -17,144% annual rate.

GOOGL shares rose by 4.8% over the six-day lifespan of the position, for a 292% annual rate. The options produced a 156.4% loss on debit, a -9,512% annual rate.

The online retailer Amazon.com (AMZN), headquartered in Seattle, Washington, and the diversified technology company Google Inc. (GOOGL), headquartered in Mountain View, California, publish earnings after the closing bell today, Jan. 29. The payments company Mastercard Inc. (MA), headquartered in Purchase, New York, publishes prior to the opening bell the next day, Jan. 30.

All have Weeklys among their options inventories, and I shall trade the FEB1 series of options, which trades for the last time on Feb. 6, eight days hence.

[AMZN, GOOGL, MA in Wikipedia]

AMZN

Volatility

Implied volatility stands at 43%, in the 73rd percentile of the rise from 27% on Nov. 26, 2014  to 48% on Jan. 15.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Upper320.55339.64316.93
Lower282.37263.28285.25
Gain/loss6.3%12.7%
Implied volatility 1 and 2 standard deviations; chart support and resistance

Direction

Click on chart to enlarge.
AMZN at 10:50 a.m. New York time, 30 days hourly bars
AMZN ended, at least temporarily, its long run up from its recession plunge in January 2014 and has been in a countertrend correction ever since. The form has been a descending triangle -- a series of lower highs but a flat lower base. The bounces came in May 2014 at $284.38, October 2014 at $284.00 and January at $285.25.

The Jan. 23 peak was lower than the prior high in the triangle, making it part of of a semi-downtrend (lower highs, steady lows), although it came in above the prior turning point, making it an uptrend. Given the ambiguities, it's a judgement call, which is high sounding language for "make a guess". My sense is that at the larger scale, the downtrend is predominant.

Nearer term, the price is in the second day of a decline.

The directional score, based on the chart and analyst ratings, is -1, arguing for a bear position.
I shall structure my trade as a bear call spread.

The Trade


Bear call spread, short the $317.5 calls and long the $320 calls
sold for a credit and expiring Feb. 7
Probability of expiring out-of-the-money

FEB1Strike%
317.571.2

The risk/reward ratio stands at 13:50 (a bit less than 3:1). All of the chart range lies within the zone of maximum profit at expiration, and less than 1% of the one standard deviation range lies beyond it.

GOOGL

Volatility

Implied volatility stands at 29%, in 79th percentile of the rise from 19% on Nov. 8, 2014  to 32% on Dec. 16 2014. The peaks and valleys are less pronounced on GOOGL and on other stocks I've worked with, so the selection of the specific reference range is a bit arbitrary. However, the conclusion is sound: Implied volatility is relatively high.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Upper529.12550.99545.41
Lower495.38463.51490.91
Gain/loss4.3%8.6%
Implied volatility 1 and 2 standard deviations; chart support and resistance

Direction

Click on chart to enlarge.
GOOGL at 11:25 a.m. New York time, 30 days hourly bars
GOOGL began its present rise in 2011. It swiftly exceeded the pre-recession nigh and kept on going, peaking in February 2014 and then declining in a downtred that is still underway.

The Jan. 23 peak marks the second upside test in a pause in the decline -- a sideways correction that could satisfy the forms of Elliott wave analysis either by plunging below the Jan. 12 low of $490.91 or by bouncing back to the upside from near the level for yet more sideways movement bounded to the top by $545 or its environs.

The trend on the 30-day chart could conceivably be rated as sideways for the full period or as a downtrend for the week. For scoring purposes, I'm going with the decline from Jan. 23 and calling it a downtrend.

The very near term trend today, as the day before, is down.

Despite the downtrending chart, analyst ratings are positive enough to nudge the directional score into positive territory, making it a 1. This argues for a bull position.

However, I'm quite nervous about the disconnect between the 53% enthusiasm rating from analysts and the downtrending chart. So I'm going to try to have my cake it to

I shall structure my trade as an iron condor, which profits from moves in either direcition -- up to a point.

The Trade


Iron condor, short the $530 calls and $480 puts and long the $540 calls and $470 puts
sold for a credit and expiring Jan. 7
Probability of expiring out-of-the-money

FEB1Strike%
Upper53078.5
Lower48075.8

The risk/reward ratio stands at 223:1000 (a bit above 2:1).

MA

Volatility

Implied volatility stands at 33%, in the top percentile of the rise from 23% on Dec. 23, 2014  to 33% today

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Upper84.6088.5683.55
Lower76.6872.7279.82
Gain/loss4.9%0.0%
Implied volatility 1 and 2 standard deviations; chart support and resistance

Direction

Click on chart to enlarge.
MA at 12:10 p.m. New York time, 30 days hourly bars
MA hit a peak in its long and steady post-recession rise in December 2014. The resulting counter-trend correction has been so slight that were it to stop at current levels, it would count as no more than a slightest of scuffing in the course of the relentless progress.

The counter-trend correction itself pause beginning Jan. 8 to construct a descending triangle, with a base of $81.83. The price broke below the base significantly on Jan. 27 and again, more decisively, on Jan. 28, in the area marked in yellow.

MA has been in a clear downtrend since the December 2014 peak but has switched to a sideways pause today.

That switch to a sideways trend in the very near term raises the directional score, based on the chart and analyst ratings, to 2, arguing for a bull play, despite the recent downward trend of the chart.

I shall structure the trade as a bull put spread.

The Trade


Bull put sprad, short the $79 puts and long the $78 puts
sold for a credit and expiring Feb. 7
Probability of expiring out-of-the-money

FEB1Strike%
Upper8475.4

The risk/reward ratio stands at 13:50, somewhat below 3:1.

Decision for My Account

I've opened positions in AMZN, GOOGL and MA as decribed above.

-- Tim Bovee, Portland, Oregon, Jan. 29, 2015

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

The directional score is calculated as the sum of the following:
  • Zacks rating --The Zacks ratings are translated as follows: 1=2, 2=1, 3=0, 4=-1 and 5=-2.
  • Enthusiasm rating --: A single percentage derived from the number of analysts whose opinions are in one of five categories: Strong buy, buy, hold, sell and strong sell.
  • Strong buy share -- The percentage of all analysts who rank the stock strong buy. If the share is 60% or greater, the score is 1; if 40% or less, then the score is -1; otherwise, the score is zero.
  • Ethusiasm momentum -- The score is 1 if today’s enthusiasm rating is larger than the rating 30 days earlier; otherwise, the score is zero.
  • 30-day direction -- The trend that best describes the 30-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.
  • One-day direction -- The trend that best describes the one-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.


From time to time I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.



Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Thursday's Prospects

On Wednesday, Jan. 28:

Of 1,189 stocks and exchange-traded funds in my analytical universe, 38 broke beyond their 20-day price channels, four to the upside and 34 to the downside.

Two symbols survived initial screening, all having broken out to the downside. One of them gave a bear signal on the first trading day after earnings were published, putting it under special rules.

One symbol appearing on my supplemental list of innovative companies gave a bull signal and also met my earnings announcement rules.

There are three prospects for trades keyed to earnings under my Volatility Rules.

I shall do further analysis on Thursday, Jan. 29.

The next earnings season began Jan. 12, with the announcement by AA and runs six weeks. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening. The rule doesn't apply to trades under my Volatility Rules.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.


Bull
(none)

Bear
MCD
Innovators
(bull)
AAPL


First-round survivors: Special handling

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull earns
(none)
Bear earns
HES
Bull ex-div
(none)
Bear ex-div
(none)


Potential trades under my Volatility Rules, keyed to events

The dates are those of the events, all of them earns announcements. Events prior to the opening bell are marked "am", during the trading day "mid", and after the closing bell "pm". The lists are sorted in descending order by average volume.

Today pm
AMZN
GOOGL
Tomorrow am
MA


Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Jan. 29, 2015

References

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

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 decision decisions for his or her own account, and take responsibility for the consequences.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss'ss

Wednesday, January 28, 2015

Wednesday's Outcomes

I opened a bull position coinciding with earnings on BABA. See the analysis, "BABA: Volatility play".

I exited my volatility play in AAPL just a few cents shy of maximum profit. See "AAPL, YHOO: Volatility plays" for the results.

I exited in-the-money positions composed of Weeklys expiring on Saturday, all of them volatility plays keyed to earnings announcements. I've updated these analyses with results:
I began a "lessons learned" process on Monday, with the goal of lessening the chance of a repetition of the week's string of loosing volatility plays.

"What's the direction?" on Monday framed the question and outlined a possible solution. 

I applied a modification the proposed solution in my post-mortem on Tuesday of the CREE loss in "CREE, IBM, NFLX, USB: Volatility plays".

The References section at the bottom the "BABA: Volatility play" outlines direction-picking process that I've developed and intend to use going forward, no doubt with modifications to come. The BABA analysis was the first use of the process, which produces a "directional score" to guide my trade.

These changes will eventually migrate over to my former rules, but the method is still in the development stage, so I'll keep it informal for now.

References

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.


Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

BABA: Volatility play

Update 2/14/2015: Shares declined by 9.8% over the lifespan of the position, for a +513% annual rate. The options produced a 286.0% loss on debit, a -14,913% annual rate.

The Chinese online and mobile commerce company Alibaba Group Holding Ltd. (BABA), headquartered in Hangzhou, China, publishes before after the opening bell on Wednesday, Jan. 29.

BABA has Weeklys among its options inventory, and I shall trade the FEB1 series of options, which trades for the last time on Feb. 6, nine days hence.

[BABA in Wikipedia]

BABA

Volatility

Implied volatility stands at 42%, in the 100th percentile of the rise from 36% on Jan. 23.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Upper107.91114.21105.20
Lower94.3987.7995.92
Gain/loss6.5%13.08%
Implied volatility 1 and 2 standard deviations; chart support and resistance

Direction

Click on chart to enlarge.
BABA at 10:50 a.m. New York time, 2 months 3 weeks, hourly bars
After its initial public offering in September 2014, BABA hit a peak of $120 on Nov. 13, 2014 before beginning a decline that made its most recent lower low on Jan. 16 at $95.92. From that point it reversed, rising to$105.20 by Jan. 23, then reversed again to a higher low and is today again on the rise in the first half hour of trading.


Zacks Investment Research gives BABA its most second most bullish rating. The enthusiasm rating among analysts is 91%, unchanged down from a month earlier. Of analysts following BABA, 91% rate it a strong buy, the strongest bullish rating. I'm rating the 30-day trend as falling and the intra-day trend to be rising.

Combining the Zacks rating, enthusiasm index, the percentage of strong bulls and the chart trends produces a directional score of 3, which argues for a bull play.

I shall structure my trade as a bull put spread.

The Trade


Bull put spread, short the $95 puts and long the $93 puts
sold for a credit and expiring Feb. u
Probability of expiring out-of-the-money

FEB1Strike%
9570.0

The risk/reward ratio stands at 3:1.

Decision for My Account

I've opened a bull position in BABA as described above.

-- Tim Bovee, Portland, Oregon, Jan. 28, 2015

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

The directional score is calculated as the sum of the following:
  • Zacks rating --The Zacks ratings are translated as follows: 1=2, 2=1, 3=0, 4=-1 and 5=-2.
  • Enthusiasm rating --: A single percentage derived from the number of analysts whose opinions are in one of five categories: Strong buy, buy, hold, sell and strong sell.
  • Strong buy share -- The percentage of all analysts who rank the stock strong buy. If the share is 60% or greater, the score is 1; if 40% or less, then the score is -1; otherwise, the score is zero.
  • Ethusiasm momentum -- The score is 1 if today’s enthusiasm rating is larger than the rating 30 days earlier; otherwise, the score is zero.
  • 30-day direction -- The trend that best describes the 30-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.
  • One-day direction -- The trend that best describes the one-day chart: 1 for an uptrend, -1 for a downtrend and zero for a sideways trend.
From time to time I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.



Alerts


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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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Wednesday's Prospects

On Tuesday, Jan. 27:

Of 1,189 stocks and exchange-traded funds in my analytical universe, 10 broke beyond their 20-day price channels, four to the upside and six to the downside.

No symbols survived initial screening, all having failed to have sufficiently high historical odds of a successful trade.

No symbols appearing on my supplemental list of innovative companies gave a bull signal and also met my earnings announcement rules.

There is one prospect for a trade keyed to earnings under my Volatility Rules.

I shall do further analysis on Wednesday, Jan. 28.

The next earnings season began Jan. 12, with the announcement by AA and runs six weeks. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, increasing numbers of symbols will be removed from my prospective trades list during initial screening. The rule doesn't apply to trades under my Volatility Rules.

First-round survivors: Regular rules

The lists are sorted in descending order by average yield. Regular rules means that confirmation will require trading above the 20-day price channel breakout level.


Bull
(none)

Bear
(none)
Innovators
(bull)
(none)


First-round survivors: Special handling

The lists are sorted in descending order by average yield. Rules for a breakout immediately following an earnings announcement require that confirmation on the following trading day, Reset Day, require that the price be beyond the Reset-Day 20-day price channel. A breakout following a stock going ex-dividend must be confirmed on the fifth trading day after ex-dividend day.

Bull earns
(none)
Bear earns
(none)
Bull ex-div
(none)
Bear ex-div
(none)


Potential trades under my Volatility Rules, keyed to events

The dates are those of the events, all of them earns announcements. Events prior to the opening bell are marked "am", during the trading day "mid", and after the closing bell "pm". The lists are sorted in descending order by average volume.

Today pm
(none)
Tomorrow am
BABA


Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are greater than 50%, I next screen for the absence of an earnings announcement within the next 30 days.

For bear signals, I also screen to ensure the ability to do a trade because of the presence of options, without yet passing judgment on whether those options are liquid enough to support a trade.

I sort by the results in descending order by the average yield on signals in the direction of the breakout in preparation for the second round of analysis after the opening bell.

-- Tim Bovee, Portland, Oregon, Jan. 28, 2015

References

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

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 decision decisions for his or her own account, and take responsibility for the consequences.
License

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.Tss s ss'ss

Tuesday, January 27, 2015

Tuesday's Outcomes

One leg of my CREE options spread was assigned and I unwound the rest of the position I've updated the Jan. 20 analysis, "CREE, IBM, NFLX, USB: Volatility plays", with a fresh chart and an extensive lessons learned discussion that includes a retractive application of my new directional scoring method that I added to the mix beginning today. See my essay, "What's the direction?".

I opened a bull position in AAPL just prior to its earnings announcement after the close today. See the analysis, "AAPL, YHOO: Volatility plays".

References

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.


Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Tuesday's Finalists

EWG was the lone survivor from the early rounds of screening from Monday's trading session. (See "Tuesday's Prospects".)

It disappointed. EWG failed confirmation by dropping back within its 20-day price channel.

I traded one of two possibilities for very short term trades entered just before earnings are published. AAPL made the grade; YHOO failed. See the analysis here.

-- Tim Bovee, Portland, Oregon, Jan. 27, 2015

References

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.



Alerts


Two social media feeds provide notification whenever something new is posted.
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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

AAPL, YHOO: Volatility plays

The consumer electronics company Apple Inc. (AAPL), headquartered in Cupertino, California, and the digital content company Yahoo! Inc. (YHOO), headquartered in Sunnyvale, California, both publish earnings on Tuesday, Jan. 27 after the closing bell.

Both have Weeklys among their options inventories, and I shall trade the FEB1 series of options, which trades for the last time on Feb. 6, nine days hence.

[AAPL, YHOO in Wikipedia]

AAPL

Volatility

Implied volatility stands at 44%, in the 98th percentile of the rise from 27% on Dec. 23, 2014  to 44% on Jan. 15.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Upper114.20115.04114.36
Lower112.50111.66109.21
Gain/loss0.8%1.5%
Implied volatility 1 and 2 standard deviations; chart support and resistance
Direction

Click on chart to enlarge.
AAPL at 10 a.m. New York time, 30 days, hourly bars

AAPL hit a longer-term peak of $119.17 in November 2014 and has since been in a counter-trend correction. Elliott wave analysis suggests it could be a major peak going back at least four degrees of magnitude, with present correction being a shallow 4th-wave correction. At this level the bias is toward the downside.

However, the correction has lasted two months and has taken the form of a three-wave pattern, which is sufficient under Elliott to meet the minimum requirements for completion..

If the correction has indeed run its course, then the next move will be the 1st wave to the u pside of a 3rd wave of higher degree.

Nearer term, AAPL, hit its first peak of the correction 30 days ago and has continued zig-zagging since then, completing its 4th wave -- this one to the upside -- on Jan. 26 at $114.36. The prior low was $105.20 on Jan. 16.

The Jan. 16 low could be the lower boundary of the chart range. An alternative would be a low of lesser degree within the ensuing upward wave, at $109.21 on Jan 16.

The price began another leg down on Jan 26, in the area highlighted in yellow on the chart. The peak set a higher high from the Jan. 9 peak and yet failed to pierce the Dec. 29, 2014 resistance level, making the trend ambiguous.

The most recent movement was to the upside, and the intra-day trend from Monday was to the downside. The whole of the past month could also be seen as a sideways movement. It's ambiguous.

Zacks Investment Research gives AAPL its most bullish rating. The enthusiasm rating among analysts is 31%, down from 50% a month earlier. Of analysts following AAPL, 66% rate it a strong buy, the strongest bullish rating. I'm rating the 30-day trend as rising  (a judgement call, to be sure) and the intra-day trend to be falling.

Combing the Zacks rating, enthusiasm index, the percentage of strong bulls and the chart trends produces a directional score of 4, which argues for a bull play. That also coincides with my sense of the AAPL narrative, with new products, including the long-awaiting watch, said to be ready for announcement in April and commentators anticipating large sales of the iPhone 6 series, especially in China.

I shall structure my trade as a bull put spread.

The Trade

In given the price decline from Monday within a bullish directional score, I'm very much concerned about protecting the downside. Rather than setting the hedge at the nearest downside resistance -- around $109 -- and gone down to the lower, more significant resistance level of around $105. This places both standard deviation ranges within the zone of profitability at expiration, while also protecting an expanded chart range.

Bull put spread, short the $00 puts and long the $00 puts
sold for a credit and expiring Feb. 7
Probability of expiring out-of-the-money

FEB1Strike%
10569.0

The risk/reward ratio stands at 57:200 (about 3:1).


YHOO

Volatility

Implied volatility stands at 51%, in the 86th percentile of the rise from 31% on Dec. 5, 2014  to 54% on Jan. 15.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Upper48.8649.1549.79
Lower48.2847.9945.85
Gain/loss0.6%1.2%
Implied volatility 1 and 2 standard deviations; chart support and resistance

Direction

Click on chart to enlarge.
YHOO at 10 a.m. New York time, 2-1/2 months, hourly bars
YHOO attained a decades-level peak of $52.62 in November 2014 and then began a decline which has taken the form of a steady movement to the downside that accelerated from $50.41 on Jan. 9.

The two trend channels on the chart show the acceleration of the decline. Note that the rise from the Jan. 16 end of the accelerated decline has broken significantly above the trend channel, lending strength to the argument that the trend is to the upside. However, absent a break above the Jan. 9 peak, which would be a higher high, I must see the trend at that level as down. It's extremely ambiguous.

The intra-day trend, in the area marked in yellow on the chart, is also down.

Zacks Investment Research gives YHOO a neutral rating. The enthusiasm rating among analysts is 17%, down from 36% a month earlier. Of analysts following YHOO, 58% rate it a strong buy, the strongest bullish rating. I'm rating the 30-day trend as falling  (a judgement call, given the ambiguities), and the intra-day trend to be falling.

Combing the Zacks rating, enthusiasm index, the percentage of strong bulls and the chart trends produces a directional score of zero, which argues against making a trade in either direction. The score results from a divergence between the chart and the analysts.

Decision for My Account

I've opened a bear position in AAPL as described above. I've declined to open a position in YHOO.

-- Tim Bovee, Portland, Oregon, Jan. 27, 2015

References

My volatility trading rules can be read here. For a discussion of the rationale behind the rules, see my essay, "Rules for very short term trades".

From time to time I use the number 68.2% in using applied volatility to calculate the expected trading range. This comes from statistics and refers to the one standard deviation boundaries, which are expected to contain 68.2% of whatever is being studied. Putting it another way, given an item (a trade or whatever), there is a 68.2% chance that it will appear within those boundaries.

Elliott wave analysis tracks patterns in price movements. The principal practitioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading

Several web sites summarize Elliott wave theory, among them, Investopedia, StockCharts and Wikipedia.



Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.