Friday, September 25, 2015

HOT Analysis

The upscale leisure company Starwood Hotels & Resorts Worldwide Inc. (HOT), headquartered in Stamford, Connecticut, closed below its 20-day price channel on Thursday, sending a bear signal with low historical odds of success, suggesting a non-directional trade.

HOT publishes earnings on Oct. 27.

[HOT in Wikipedia]


I shall consier the NOV series of options, which trades for the last time 56 days hence, on Nov. 20.


HOT completed five bear signals in the past year. Two were successful, on average each yielding 5.9% over 41 days. Three were unsuccessful, each on average losing 3.7% over 27 days. The success rate is 40%.


Click on chart to enlarge.
HOT at 11:59 a.m. New York time, 1 year daily bars, with implied volatility
Implied volatility stands at 43.3%, which is double the VIX, a measure of volatility of the S&P 500 index. HOT’s volatility stands in the 72nd percentile of its annual range.

The technical on HOT are fine. It's the earnings announcement that is the problem. I'm going straight to judgement.

Decision for My Account

Earnings announcements are shown as blue squares in the price portion of the chart (upper). In each case implied volatility rises in the lead up to publications of earnings. There's no reason to expect it will be different this time.

The iron condor position I would use for this play relies for its profit in part on declining volatility, the opposite of my expectation for HOT between now and earnings.

HOT is not a bad trade, with high volatility both in the absolute sense and relative to volatilities annual range. But HOT will make better sense as a play coinciding with earnings rather than one entered less than five weeks out.

-- Tim Bovee, Portland, Oregon, Sept. 25, 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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