The stock price declined by -2.9% over the 12 days I held the bear position, or a -87.8% annual rate. My options produced a 100% yield on debit, for a +3,042% annual rate.
The global copper, gold and fossil fuels company Freeport-McMoRan (FCX), headquartered in Phoenix, Arizona, publishes earnings on Tuesday prior to the openig bell.
FCX has Weeklys among its options inventories, and I shall trade the FEB1 series of options, which trades for the last time on Feb. 6, 12 days hence.
[FCX in Wikipedia]
FCX
Volatility
Implied volatility stands at 56%, in the 78th percentile of the range of the prior rise, from 42% on Jan. 8 to 60% on Jan. 14.
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 19.52 | 19.65 | 20.56 |
| Lower | 19.26 | 19.13 | 17.95 |
| Gain/loss | 0.66% | 1.32% |
Click on chart to enlarge.
 |
| FCX at 10:40 a.m. New York time, 30 days hourly bars |
The most recent decline of smaller degree within those larger movement began on Jan. 9 and ended on Jan. 14, and included an 8.5% opening gap to the downside.
From the Jan. 14 low, the price retraced nearly 50% of the decline, up to $20.56, then resumed its downward movement. It has not yet attained a lower low below $17.85, a level required to confirm that the downtrend is still in force.
However, the stock is presently in a downtrend or a downward leg n all degrees stretching back to 2010, creating a strong bias toward a bear position.
However, although Zacks Investment Research gives FCX a neutral rating, anaylsts following the stock are in aggregate positive about its outlook, producing a 37.5% enthusiasm rating. However, enthusiasm for FCX is also on the decline, down by 15.8 percentage points in the past month.
The Trade
Given the cast of the downtrending chart and the decline in analyst enthusiasm, even if it remains positive on balance, I'm inclined toward a bear trade on FCX.
sold for a credit and expiring Xxx. 00
Probability of expiring out-of-the-money
| FEB1 | Strike | % |
|---|---|---|
| 20.5 | 72.7 |
The risk/reward ratio stands at 7:20. The position places all of both the chart range and the one standard deviation range within the zone of maximum profit.
Decision for My Account
I have opened a position in FCX, as described above.
-- Tim Bovee, Portland, Oregon, Jan. 26, 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".
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.
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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
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.
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