Shares declined by 4.0% over ine days, or a -155% annual rate. The options position produced a 240,0% yield on debit, for a +9,733% annual rate.
Update 6/6/2015: Greek voters rejection of an austerity package proposed by Eurozone creditor nations sent stocks down in both Europe and the United States, and I closed my position in EFA for a profit.
Shares declined by 0.9% over six days, or a -56% annual rate. The options position produced a 141.7% yield on debit, for a +8,618% annual rate.
The digital circuits maker Analog Devices Inc. (ADI), headquartered in Norwood, Massachusetts, and the iShares MSCI EAFE Index Fund (EFA), which tracks markets across Europe and Asia.
I shall use the JUL monthly series of options, which trades for the last time 17 days hence on July 17 for my ADI analysis, and the JUL2 weeklys series, which completes trading 10 days from now on July 10 in analyzing EFA.
ADI
ADI is a directional play because two-thirds of its three bear signals over the past year have been profitable. the winners on average yielded 4.0% over 39 days. The lose ended down 6.5% over 37 days.
Ranges
Click on chart to enlarge.
 |
| ADI at 11:42 a.m. New York time, 30 days hourly bars |
Ranges implied by options and the chart
| Week | SD1 68.2% | SD2 95% | Chart | Earns |
|---|---|---|---|---|
| Upper | 68.18 | 72.42 | 68.63 | N/A |
| Lower | 59.72 | 55.48 | 61.26 | N/A |
| Gain/loss | 6.6% | 13.2% |
sold for a credit and expiring July 18.
Probability of expiring out-of-the-money
| JUL | Strike | OTM |
|---|---|---|
| 65 | 60.4% |
The premium is $0.68, which is 27% of the width of the position’s wing. The stock at the time of purchase was priced at $64.06
The risk/reward ratio is 2.6:1.
EFA
I'm looking at EFA as a bear play because of its record of profitable bear plays. EFA has completed four bear signals over the past year. Three were successful, on average yielding 3.0% over 42 days. The one unsuccessful signal lost 2.6% over 17 days.
Ranges
Click on chart to enlarge.
 |
| EFA at 11:54 a.m. New York time, 30 days hourly bars |
| Week | SD1 68.2% | SD2 95% | Chart | Earns |
|---|---|---|---|---|
| Upper | 66.93 | 68.53 | 67.72 | N/A |
| Lower | 61.63 | 59.33 | 62.39 | N/A |
| Gain/loss | 3.6% | 7.2% |
The Trade
Bear call spread, short the $64 calls and long the $66 calls,
sold for a credit and expiring July 11.
Probability of expiring out-of-the-money
| JUL2 | Strike | OTM |
|---|---|---|
| 64 | 59.2% |
The premium is $0.58 which is 29% of the width of the position’s wing.The stock at the time of purchase was priced at $63.51.
The risk/reward ratio is 2.4:1.
Decision for My Account
I've opened short positions in ADI and EFA as described above.
-- Tim Bovee, Portland, Oregon, June 30, 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.License
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Based on a work at www.timbovee.com.
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