Tuesday, July 21, 2015

EMC Analysis

Update 8/22/2015: My EMC puts expired Saturday. Shares rose 4.3% over 23 days, or a +68% annual rate. The options produced a 51.8% loss on debit for a -822% annual rate.

Update 8/6/2015: EMC moved above the profit zone, and I've exited the calls, transforming the position into a bull put spread profitable down to $22. I'll calculate profit and loss after the position expires on Aug. 22.

The infotech infrastructure and support company EMC Corp. (EMC), headquartered in Hopkinton, Massachussetts, publishes earnings Wednesday before the opening bell.

[EMC in Wikipedia]



Click on chart to enlarge.
EMC at 10:36 a.m. New York time, 2 years daily bars
EMC is at its lowest point since early 2014. The most recent support level is $23.47 in February 2014.

Implied volatility stands at 28.5%, which is 2.3 times the VIX, a measure of volatility of the S&P 500 index. EMC’s volatility stands in the 99th percentile of its most recent rise.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

I shall use the AUG monthly series of options, which trades for the last time 31 days hence, on Aug. 21.

I've skewed the zone of profit sharply to the downside to acknowledge the strong downward trend on this chart.

Iron condor, short the $25.50 calls and long the $26.50 calls,
short the $23.50 puts and long the $22.50 puts,
sold for a credit and expiring Aug. 22.
Probability of expiring out-of-the-money


The premium is $0.41, which is 41% of the width of the position’s wings.The stock at the time of purchase was priced at $25.06.

The risk/reward ratio is 1.4:1.

The zone of profit in the proposed trade covers a $1 move either way. The biggest immediate move after each of the past four earnings announcements was $0.81, and the average was $0.35.

Decision for My Account

I've opened a position on EMC as described above.

-- Tim Bovee, Portland, Oregon, July 21, 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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