The index tracks the 50 most liquid Chinese stocks trading on the Hong Kong Stock Exchange. The three top holdings as a percentage of net assets are Tercent Holdings Ltd., China Mobile Ltd. and China Construction Bank.
I shall use the JUN1 Weeklys series of options, which trades for the last time four days hence, on June 5.
[FTSE China 50 Index information from the FTSE Group (pdf)]
FXI has completed four bear signals in the past year, for a 25% success rate. The one winner yielded 1.5% over 39 days. The three unsuccessful signals lost 4.1% over 13 days, on average.
Click on chart to enlarge.
|FXI at 11:15 a.m. New York time, 90 days 2-hour bars|
|Week||SD1 68.2%||SD2 95%||Chart|
FXI has been roaming sideways since late April in a pattern that can be seen as a descending triangle, (in blue on the chart), a bearish pattern. That means I need a profit range that covers close to the chart-range high, $52.08 down to the support level, $48.71.
short the $48.50 puts and long the $47.50 puts
sold for a credit and expiring June 6
Probability of expiring out-of-the-money
The risk/reward ratio stands at 2.7:1.
Decision for My Account
This chart is unusual in that it imposes well-defined requirements on the trade structure. The potential trade described above meets those requirements. The resulting risk/reward ratio is 2.7:1. For an iron condor, I don't like to go above 2:1. Therefore, I'm declining to take this trade.
-- Tim Bovee, Portland, Oregon, June 1, 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.License
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