Tuesday, June 9, 2015

VNQ Analysis

Update 8/31/2015: I've exited VNQ for a profit 18 days before the position expires. The premium had declined to $31 per contract, close enough to full profit for me to eliminate the remaining time risk.

Shares declined by 2.25 over 83 days, or a -10% annual rate. The options produced a 410.0% yield on debit, for a +1,803% annual rate.

Update 6/19/2015: VNQ underwent  rapid three-day rise from June 16 through June 18. It was enough to push it past the zone of profitability for the iron condor, and I exited for a loss on the last trading day before expiration.

Shares rose by 3.1% over 10 days, or a +113% annual rate. The options positon produced a 126.1% loss on debit, for a -4,602% annual rate

The Vanguard REIT Index Fund (VNQ), which invests in real-estate investment trusts, has qualified for a closer look as a trade because rising volatility.

I shall use the SEP monthly series of options, which trades for the last time 100 days hence, on Sept. 19, for a potential unhedged trade, and the JUN series, which ends its trading nine days from now, on June 19, for a companion hedged position.

[REITs in Wikipedia]



Click on chart to enlarge.
VNQ at 2:40 p.m. New York time, 180 days 4-hour bars
Implied volatility stands at 18.2%, which is 1.2 times the VIX, a measure of volatility of the S&P 500 index. VNQ’s volatility stands in the 00 percentile of its most recent rise.
The Trade

For the unhedged trade, I've extended the profit zone to the downside to match the long-standing trend.

Strangle, short the $80 calls and long the $65 puts,
sold for a credit and expiring Sept. 19
Probability of expiring out-of-the-money


The premium is $1.53. The stock at the time of purchase was priced at $76.80.

For the unhedged trade, I've also tiled the zone toward the downside.

Iron condor, short the $77 calls and long the $78 calls,
short the $74 puts and long the $73 puts
sold for a credit and expiring June 20
Probability of expiring out-of-the-money


The premium is $0.46, with the share price trading at $76.77.

Decision for My Account

I've opened the two positions as described above.

-- Tim Bovee, Portland, Oregon, June 9, 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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Based on a work at www.timbovee.com.

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