Of 500 large-cap stocks and exchange-traded funds in my analytical universe, 72 broke beyond their 20-day price channels, all having broken out to the downside.
Two symbols with high odds of success survived initial screening, both having broken out to the downside. High-odds symbols are candidates for directional trades.
No symbols with low odds of success survived initial screening. The three finalists -- SPY, DIA and ADP -- all broke out to the downside but failed because of low implied volatility relative to the most recent major rise. Low-odds symbols are candidates for non-directional trades.
There are no prospects for trades coinciding with earnings announcements under my Volatility Rules. GIS came closest to meeting my criteria but failed because of overly low implied volatility.
I shall do further analysis on Tuesday, June 30.
Earnings season begins July 8, with peak announcements lasting for three weeks. Under the exclusion rule that forbids me from opening new positions in stocks within 30 days of an earnings announcement, in month before the season begins increasing numbers of symbols will be removed from my prospective trades list during initial screening. The rule doesn't apply to trades under my Volatility Rules.
The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.
I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.
For symbols whose odds of success are in the top or bottom thirds, I next screen for 1) suitability of the options grid, including implied volatility of three figures or greater on the strike prices I would need to use to build a position, 2) implied volatility in the 70th percentile or greater of its most recent rise, and 3) the absence of an earnings announcement within the next 30 days.
-- Tim Bovee, Portland, Oregon, June 29, 2015
My 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 decision decisions for his or her own account, and take responsibility for the consequences.License
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