Monday, May 4, 2015

ADM Analysis

Update 5/4/2015: I was unable to obtain a fill of my order on ADM at a price providing a sufficiently high reward to compensate for the level of risk.

My initial ask, 40 cents a contract, provided a 1.6:1 risk/reward ratio. I went as low as 35 cents, which produced a 1.9:1 risk/reward ratio. Lower I would not go.

One beautiful aspect of iron condors is that they provide low risk compared to the reward, much more so that short vertical spreads. I rarely go up to a 2:1 ratio on iron condors.

So, no earnings play on ADM today.

The agricultural commodities processor and trader Archer Daniels Midland Co. (ADM), headquartered in Chicago, Illinois, publishes earnings before the opening bell on Tuesday.

I shall use the MAY2 series of options, which trades for the last time four days hence, on May 8.

The goal of my trades is to construct 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.

[ADM in Wikipedia]



Click on chart to enlarge.
ADM at 10:45 a.m. New York time, 90 days 2-hour bars
Implied volatility stands at 24.8%, which is 1.9 times the VIX, a measure of volatility of the S&P 500 index. ADM’s volatility stands in the 59th percentile of its most recent rise.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Implied volatility 1 and 2 standard deviations; chart support and resistance

The Trade

Iron condor short the $51.50 calls and long the $52.50 calls,
short the $49 puts and long the $48 puts
sold for a credit and expiring May 9
Probability of expiring out-of-the-money


The risk/reward ratio stands at 1.6:1.

Decision for My Account

ADM has a spotty open interest on its options grid today, making it difficult for my order to be filled at a price that will maintain a decent risk/reward ratio. The same conditions hold true for the next further out options series, the MAY monthly issue.

I've placed an order as described above, and am having problems getting a fill.

So I'm adopting a take-it-or-leave-it strategy. I shall leave my order active at the ask that I want. If the market  comes to me, then it'll be filled. If not, then it's no trade.

-- Tim Bovee, Portland, Oregon, May 4, 2015


My volatility trading rules can be read here.


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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.

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