PRU Analysis

Update 9/19/2015: My bear call spread on PRU expired without value for maximum profit Shares declined by 7.9% over 29 days, or a -100% annual rate. The spread produced a yield of $71 per contract. Since the debit value is zero, it isn't possible to calculate a percentage yield.

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The financial services company Prudential Financial Inc. (PRU), headquartered in Newark, New Jersey, closed below its 20-day price channel on Thursday and continued to trade lower on Friday. The stock has high historical odds that bull signals will be profitable, making it a candidate for a directional trade.

[PRU in Wikipedia]

PRU

I shall use the SEP series of options, which trades for the last time 28 days hence, on Sept. 18.

Odds

PRU has completed three bear signals in the past year for a success rate of 67%. Two were successful, on average yielding 3.9% over 30 days. The one unsuccessful signal lost 4.0% over 27 days.

Ranges

Click on chart to enlarge.

PRU at 11:11 a.m. New York time, 180 days 4-hour bars

Implied volatility stands at 32.2%, which is !1.4 times the VIX, a measure of volatility of the S&P 500 index. PRU’s volatility stands at top peak of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	89.91	97.3	92.60	N/A
Lower	75.19	67.84	78.52	N/A
Gain/loss	8.9%	17.8%

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

Bear call spread, short the $85 calls and long the $87.5 calls,
sold for a credit and expiring Sept. 19.
Probability of expiring out-of-the-money

SEP	Strike	OTM
	85	66.1%

The premium is $0.71, which is 28% of the width of the position’s wings.The stock at the time of purchase was priced at $82.37.

The risk/reward ratio is 2.5:1.

The zone of profit extends $2.63 above the price at the time of the trade, or 1.4 times the average true daily range.

Decision for My Account

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

-- Tim Bovee, Portland, Oregon, Aug. 21, 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.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.