AVGO Analysis (corrected)

Update 10/2/2015: I exited my bull put spread on AVGO for a loss, two weeks prior to expiration. Shares declined by 6.6% over 23 days, or a -104% annual rate. The options produced a -167.5% loss on debit, for a -2,658% annual rate.

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An incorrect draft version was posted in error on Private Trader and has been removed. This is the correct version.

The analog semiconductor company Avago Technologies Ltd. (AVGO), headquartered in San Jose, California and Singapore, moved above its 20-day price channel on Tuesday, producing a bull signal. Bull signals on AVGO have historically high odds of success, making it a candidate for a bull play.

[AVGO in Wikipedia]

AVGO

I shall use the OCT series of options, which trades for the last time 37 days hence, on Oct. 16. I presently hold a position in AVGO expiring Sept. 19 (analyzed here on Aug. 26) and shall treat the two positions separately.

Odds

AVGO has completed four bull signals in the past year, all of them successful, with an average gain of 9.9% over 59 days.

Ranges

Click on chart to enlarge.

AVGO at 10:50 a.m. New York time, 90 days 2-hour bars

Implied volatility stands at 50.2%, which is 2.1 times the VIX, a measure of volatility of the S&P 500 index. AVGO’s volatility stands in the 59th percentile of its annual range.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	147.19	167.49	125.77	N/A
Lower	106.61	86.31	100.00	N/A
Gain/loss	16.0%	32.0%

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

Bull put spread, short the $120 puts and long the $115 puts,
sold for a credit and expiring Oct. 16.
Probability of expiring out-of-the-money

OCT	Strike	OTM
	120	68.9%

The premium is $1.35, which is 27% of the width of the position’s wing.The stock at the time of purchase was priced at $127.97.

The risk/reward ratio is 2.6:1.

The price at entry was $7.97 within the zone of profit, or 1.6 times the average true range.

Decision for My Account

I've entered a position on AVGO as described above.

-- Tim Bovee, Portland, Oregon, Sept. 9, 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.