Implied volatility stands at 31.1%, which is double the VIX. YHOO’s volatility stands in the 67th. percentile of its most recent rise.
My guidelines require that volatility be in the 70th percentile or higher. Therefore, YHOO no longer qualifies for a trade under my rules.
I did try to construct a trade using the new numbers that would be analogous to my previous proposed trade, as follows:
Bear call spread, short the $35 calls and long the $38 calls,
sold for a credit and expiring Sept. 20.
Probability of expiring out-of-the-money
| SEP | Strike | OTM |
|---|---|---|
| 35 | 63.8% |
The premium is $0.65, which is 22% of the width of the position. The stock at the time of analysis was priced at $34.03.
The risk/reward ratio is 1.4:1.
The much lower premium makes the trade much less attractive. I'm refusing the trade and won't be looking further at YHOO as a result of the present bear signal.
The information company Yahoo! Inc. (YHOO), headquartered in Sunnyvale, California, broke below the 20-day price channel on Tuesday with a high historical probability of success, making the symbol a candidate for bear call spread.
This time as an experiment I'm going to pass on the confirmation phase, which requires that the price continue to trade below the price channel. Instead, I'll attempt to construct the trade on Wednesday whether or not the trade is confirmed.
YHOO
Odds
YHOO has completed two bear signals in the past year Both were successful on average yielding 7.9% over 72 days.
Ranges
The overwhelming fact of YHOO's chart is decline. Even without other supporting evidence, the chart taken alone suggests a bear play,
Click on chart to enlarge.
 |
| YHOO after Aug. 11 close, 2 years daily bars |
Implied volatility stands at 35.0%, which is 2.6 times the VIX, a measure of volatility of the S&P 500 index. YHOO’s volatility stands in the 91st percentile of its most recent rise.
| Week | SD1 68.2% | SD2 95% | Chart | Earns |
|---|---|---|---|---|
| Upper | 40.04 | 44.06 | 46.17 | N/A |
| Lower | 32.02 | 28.00 | 32.93 | N/A |
| Gain/loss | 11.1% | 22.3% |
The Trade
sold for a credit and expiring Sept. 20.
Probability of expiring out-of-the-money
| SEP | Strike | OTM |
|---|---|---|
| 36 | 61.5% |
The premium is $1.04, which is a third of the width of the position. The stock at the time of analysis was priced at $36.03.
The risk/reward ratio is 1.4:1.
Decision for My Account
I'm trading from East Asia this week and so shall post the analysis before the markets open, and then attempt the trade after the open, which is the dead of night my local time.
-- Tim Bovee, Fukuoka, Japan, Aug. 12, 2015
References
My volatility trading rules can be read here.
Alerts
Two social media feeds provide notification whenever something new is posted.
- On Twitter, Follow Tim Bovee: https://twitter.com/TimBovee
- On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader
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.
No comments:
Post a Comment