Tim Bovee, Private Trader: AXP, STX Analysis

Thursday, April 16, 2015

AXP, STX Analysis

Update 4/22/2015: I closed both AXP and STX, both for losses.

AXP shares declined by -3.2% over the six-day lifespan of the position, or a -195% annual rate. The options position produced an 111.9% loss on debit, for a -6,799% annual rate.

STX shares gained 3.9% over the six days, or a +237% annual rate. The options position produced a -51.2% loss on debit, for a -3,116% annual rate.

The financial services company American Express Co. (AXP), headquartered in New York City, publishes earnings on Wednesday after the closing bell, and the data-storage hardware maker Seagate Technology PLC (STX), with operations headquartered in Cupertino, California publishes on Thursday prior to the opening bell.

I shall use the APR4 series of options, which trades for the last time five days hence, on April 24.

The goal of my trades is to construct direction-neutral positions 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.

[AXP, STX in Wikipedia]

AXP

Ranges

Click on chart to enlarge.

AXP at 11:35 a.m. New York time

Implied volatility stands at 21.6%, which is 1.6 times the VIX, a measure of volatility of the S&P 500 index. AXP’s volatility stands in the 82nd percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	82.54	85.10	80.30
Lower	77.42	74.86	78.89
Gain/loss	3.2%	6.4%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

I used the one standard deviation range for the upper boundary of the profit zone and the nearer chart support range for the lower boundary of the zone as a way of reducing the risk/reward ratio

Iron condor short the $82.50 calls and long the $83.50 calls,
short the $78.50 puts and long the $77.50 puts
sold for a credit and expiring April 25
Probability of expiring out-of-the-money

APR4	Strike	OTM
Upper	82.5	80.0%
Lower	78.5	69.4%

The risk/reward ratio stands at 1.7:1. The premium is $0.34 ($0.11 for the calls and $0.23 for the puts).

STX

Ranges

Click on chart to enlarge.

STX at 11:47 a.m. New York time, 30 days hourly bars

Implied volatility stands at 34.9%, which is 2.6 times the VIX, a measure of volatility of the S&P 500 index. STX’s volatility stands in the 98th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	58.63	61.51	57.12
Lower	52.87	49.99	55.23
Gain/loss	5.2%	10.3%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

I've skewed the profit zone to the downside, where I think the greater risk is, taking the upper boundary from the narrower chart resistance level and the lower boundary from the broader one standard deviation range.

Iron condor short the $57.50 calls and long the $58.50 calls,
short the $52.50 puts and long the $51.50 puts
sold for a credit and expiring April 25
Probability of expiring out-of-the-money

APR4	Strike	OTM
Upper	57.5	69.7%
Lower	52.5	78.9%

The risk/reward ratio stands at 1.4:1. The premium is $0.41 ($0.29 for the calls and $0.12 for the puts).

Decision for My Account

I've opened positions on AXP and STX as described above.

-- Tim Bovee, Portland, Oregon, April 16, 2015

References

My volatility trading rules can be read here.

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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.