Shares rose by 2.6% over the one day lifespan of the position, or a 957% annual rate. My iron condors produced a -5.1% loss on debit, for a -1,8948% annual rate.
The agro-tech research and production company Monsanto Co. (MON), headquartered in Creve Coeur, Missouri, publishes earnings on Wednesday, April 1, before the opening bell.
MON has Weeklys among its options inventories, and I shall trade the APR1 series of options, which trades for the last time two days hence, on April 2.
[MON in Wikipedia]
The goal of my trade is to construct a direction-neutral position with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.
Click on chart to enlarge.
|MON at 10:02 a.m. New York time, 30 days hourly bars|
|Week||SD1 68.2%||SD2 95%||Chart|
My proposed trade covers all of the chart range and nearly all of the one standard deviation range. The probabilities are a bit weak on the lower side, but not to a huge extent.
short the $110 puts and long the $108 puts
sold for a credit and expiring April 4
Probability of expiring out-of-the-money
The risk/reward ratio stands at 1.5:1. The premium is 79 cents (41 cents for the calls and 38 cents for the puts) with the stock trading at $112.49.
Decision for My Account
I opened a position in MON as described above.
-- Tim Bovee, Portland, Oregon, March 31, 2015
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.
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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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
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Based on a work at www.timbovee.com.
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