CMCSA Analysis

The cable and entertainment company Comcast Corp. (CMCSA), headquartered in Philadelphia, Pennsylvania, broke below the 20-day price channel on Wednesday with low historical odds that a bearish breakout will produce a profit. If the stock confirms the low-odds signal by rising back within the price channel in Thursday's trading, it will be a candidate for a non-directional trade.

[CMCSA in Wikipedia]

CMCSA

I shall use the AUG series of options, which trades for the last time 15 days hence, on Aug. 21.

Odds

CMCSA has low historical odds of a successful breakout to the downside. It tends to whipsaw.

The stock has completed five bear signals in the past year. None was successful, with an average loss of 3.3% over 15 days.

Ranges

Click on chart to enlarge.

CMCSA after the July 5 close, 90 days 2-hour bars

Implied volatility stands at 22.2%, which is  1.8 times the VIX, a measure of volatility of the S&P 500 index. CMCSA’s volatility stands in the 81st percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	62.50	65.19	64.99	N/A
Lower	57.12	54.43	55.78	N/A
Gain/loss	4.5%	9.0%

Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move
The Trade

In construction the non-directional position I've aimed to cover the one standard deviation range within the profit zone, with the probability of expiring out of the money for maximum profit in the mid-80s range. I went out to the monthly options expiring Aug. 22 in order to trade time risk for increased premium.

Iron condor, short the $62.50 calls and long the $64.50 calls,
short the $56.50 puts and long the $54.50 puts,
sold for a credit and expiring Aug. 22.
Probability of expiring out-of-the-money

AUG	Strike	OTM
Upper	62.50	85.1%
Lower	56.50	86.4%

The premium is $0.25, which is 25% of the width of the position’s wings.The stock at the time of analysis was priced at $59.81.

The risk/reward ratio is 7:1.

The zone of profit in the proposed trade covers a $3 move either way, or 2.6 times the daily average true range.

Decision for My Account

A trade constructed to provide sufficient coverage for the profit zone and great enough probability of a profit produce an overly high risk/reward ratio. The short way of saying that is the premium isn't large enough.

For that reason, even if CMCSA confirms its low-odds bear signal on Thursday by returning above the $60.85 channel boundary, I won't be opening a position.

-- Tim Bovee, Fukuoka, Japan, Aug. 6, 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.

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Based on a work at www.timbovee.com.