NEM, AAL Analysis

The gold-mining company Newmont Mining Corp. (NEM), headquartered in Greenwood Village, Colorado, publishes earnings after the closing bell on Thursday, and the airline American Airlines Group (AAL), headquartered in Fort Worth, Texas, publishes before the opening bell on Friday.

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.

[NEM, AAL in Wikipedia]

NEM

Ranges

Click on chart to enlarge.

NEM at 11:10 a.m. New York time, 30 days hourly bars

Implied volatility stands at 23.0%, which is 2.7 times the VIX, a measure of volatility of the S&P 500 index. NEM’s volatility stands in the 24th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	24.14	25.31	24.04
Lower	21.80	20.63	21.68
Gain/loss	5.1%	10.2%

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

The proposed trade below covers all of the chart and one standard deviation ranges at the lower boundary but leaves a portion of the upper range outside of the profit zone.

Iron condor short the $24 calls and long the $25 calls,
short the $21.50 puts and long the $20.50 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money

MAY1	Strike	OTM
Upper	24	74.1%
Lower	21.5	90.5%

That best-case scenario produces a high risk/reward ratio stands at 3.5:1. That could be improved by narrowing the profit zone, but I'm reluctant to leave more of the ranges outside of the profit zone.

AAL

Ranges

Click on chart to enlarge.

AAL at 11:52 a.m. New York time, 30 days hourly bars

Implied volatility stands at 43.9%, which is 3.5 times the VIX. AAL’s volatility stands in the 54th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	54.66	58.00	53.84
Lower	47.98	44.65	46.88
Gain/loss	6.5%	13.0%

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

I'm finding it difficult to fit the trade the chart or the one standard deviation ranges.

In the proposed trade below, I've placed the lower boundary of the profit zone near the one standard deviation boundary, and the upper boundary near the chart range ceiling.

Iron condor short the $54 calls and long the $55 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	54	79.3%
Lower	48	80.3%

The result is a high risk/reward ratio of 3.8:1.

Decision for My Account

I've declined to open positions in NEM and AAL for the same: The best-case trade in terms of the chart and one standard deviation ranges produces a higher risk/reward ratio than I'm willing to accept.

-- Tim Bovee, Portland, Oregon, April 23, 2015

References

My volatility trading rules can be read here.


Alerts

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

• On Twitter, Follow Tim Bovee: https://twitter.com/TimBovee
• On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader

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.