Tim Bovee, Private Trader: DOW, LVS Analysis

Wednesday, April 22, 2015

DOW, LVS Analysis

Update 4/30/2015: LVS dropped sharply out of the profit zone a day earlier and I've closed my position for a loss.

Shares declined by 14.7% over eight days, or a -671% annual rate. The options positions produced a 71.1% loss on debit, for a -3,242% annual rate.

Update 4/27/2015: I exited DOW as the share price moved above the profit zone. Shares gained +3.7% over five days, or a +273% annual rate. My options position produced a -81.9% loss on debit, for a -5,973% annual rate.

The plastics, chemicals and agricultural products manufacturer Dow Chemical Co. (DOW), headquartered in Midland, Michigan, publishes earnings on Thursday before the opening bell, and the gaming and resort company Las Vegas Sands Corp. (LVS), headquartered in Paradise, Nevada, publishes earnings on Wednesday after the closing bell.

I shall use the MAY1 series of options, which trades for the last time nine days hence, on May 1.

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.

[DOW, LVS in Wikipedia]

DOW

Ranges

Click on chart to enlarge.

DOW at 12:35 p.m. New York time, 30 days hourly bars

Implied volatility stands at 25.0%, which is 1.9 times the VIX, a measure of volatility of the S&P 500 index. DOW’s volatility stands in the 88th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	51.45	53.39	50.43
Lower	47.55	45.61	48.19
Gain/loss	3.9%	7.9%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade
Iron condor short the $51 calls and long the $52 calls,
short the $48 puts and long the $47 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money

MAY1	Strike	OTM
Upper	51	68.1%
Lower	48	79.9%

The risk/reward ratio stands at 0:1. The premium is $0.33 ($0.21 for the calls and $0.12 for the puts), with the stock trading at $49.75.

LVS

Ranges

Click on chart to enlarge.

LVS at 12:35 p.m. New York time, 30 days hourly bars

Implied volatility stands at 32.8%, which is 2.4 times the VIX. LVS’s volatility stands in the 00 percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	58.58	61.45	57.30
Lower	52.84	49.97	54.65
Gain/loss	5.2%	10.3%

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

Iron condor short the $58 calls and long the $59 calls,
short the $53.5 puts and long the $52.5 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money

MAY1	Strike	OTM
Upper	58	73.9%
Lower	53.5	75.9%

The risk/reward ratio stands at 1.8:1. The premium is $0.38 ($0.22 for the calls and $0.16 for the puts), with the stock trading at $56.13.

Decision for My Account

I've opened position in DOW and LVS as described above.

-- Tim Bovee, Portland, Oregon, April 22, 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.