SWKS Analysis

Update 10/2/2015: I exited my iron condor for a loss two weeks prior to expiration. Shares declinend by 10.4% over 22 days, or a -173% annual rate. The options produced a -2.0% loss on debit, for a -697% annual rate.

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The semiconductor company Skyworks Solutions Inc. (SWKS), headquartered in Woburn, Massachusetts, closed above its 20-day price channel on Tuesday, giving a bull signal with high odds of success.

[SWKS in Wikipedia]

SWKS

I shall use the OCT series of options, which trades for the last time 30 days hence, on Oct 16.

Odds

SWKS has completed five bull signals in the past year, four of them successful. The wining trades on average yielded 18.4% over 84 days. The one unsuccessful trade lost 7.8% over 13 days.

The 80% success rate suggests that the best strategy is a bull put spread. However, there are externalities. See the "Trade" section below.

Ranges

Click on chart to enlarge.

SWKS at 11:02 a.m. New York time, 90 days 2-hour bars

Implied volatility stands at 49.8%, which is 2.2 times the VIX, a measure of volatility of the S&P 500 index. SWKS’s volatility stands in the 50th percentile of its annual range.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	103.51	116.44	106.50	N/A
Lower	77.67	64.71	78.22	N/A
Gain/loss	14.3%	28.5%

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

With the Federal Open Market Committee close to raising interest rates, I'm reluctant to go bullish on any shorter-term play at this point. My inclination is to go with a non-directional trade instead.

If the Fed's decision were certain, then I would assume that the event was fully priced into the market and I would be willing take the directional trade. But recent sharp declines in the China market and economic weakness in Europe has led to widespread speculation that the Fed will delay its action until December, or even early 2016.

It is that uncertainty that is causing the possibility of a sharp move. By moving in tandem with the rest of the market during the Aug. 24 China Panic, SWKS seems likely to participate in any Credit Tightening Panic, as well.

So iron condor it is. I've skewed the zone of profit to the upside because the trading signal was bullish.

Iron condor, short the $105 calls and long the $110 calls,
short the $80 puts and long the $75 puts,
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money

OCT	Strike	OTM
Upper	105	90.3%
Lower	80	78.5%

The premium is $0.80, which is 16% of the width of the position’s wings.The stock at the time of purchase was priced at 91.35.

The risk/reward ratio is 5.3:1.

The zone of profit in the proposed trade covers a $12.50 move either way, equivalent to 3.6 times the average true daily range.

Decision for My Account

I've opened a position in SWKS as described above.

-- Tim Bovee, Portland, Oregon, Sept. 16, 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.