Wednesday, May 27, 2015

DAL Analysis

Update June 4, 2015: With less than two days left to trade before expiration, DAL slipped just below the lower boundary of the profit zone. I exited quickly, and profitably.

Shares rose by 2.4% over eight days, or a +109% annual rate. The options position produced a 16.7% yield on debit, for a +760% annual rate.

Delta Air Lines. Inc. (DAL), headquartered in Atlanta, Georgia, broke below its 20-day price channel on Tuesday and confirmed the bear signal the next day. The stock has low historical odds of successful bear signals, making it a candidate for a non-directional trade.

I shall use the JUN1 Weeklys series of options, which trades for the last time nine days hence, on June 5.

[DAL in Wikipedia]


DAL has sent four bear signals in the past year, with a success rate of only 25%. The one successful signal produced a 1.2% yield over 29 days. The three unsuccessful signals on average produced a 7.0% loss over 15 days.


Click on chart to enlarge.
DAL at 11 a.m. New York time, 90 days 2-hour bars
Implied volatility stands at 36.3%, which is 2.7 times the VIX, a measure of volatility of the S&P 500 index. DAL’s volatility stands at the top 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

I've skewed the range a bit to the downside to account for the bearishness in the general market.

Iron condor short the $44 calls and long the $45 calls,
short the $41 puts and long the $40 puts
sold for a credit and expiring June 6
Probability of expiring out-of-the-money


The risk/reward ratio stands at 1.3:1. The premium is $0.42 ($0.27 for the calls and $0.15 for the puts), with the stock at $42.95.

Decision for My Account

I've opened a position in DAL as described above.

-- Tim Bovee, Portland, Oregon, May 27, 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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