Monday, November 30, 2015

Tuesday's Prospects

On Monday, Nov. 30:

Of 495 large-cap stocks and exchange-traded funds in my analytical universe, six broke beyond their 20-day price channels, one to the upside and five to the downside.

No symbols giving trading signals survived initial screening.
There are no prospects for trades coinciding with earnings announcements.

With no prospects, I shall do no further analysis of new positions on Tuesday, Dec. 1.

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are in the top or bottom thirds, suggesting a directional or non-directional trade, respectively, I next screen for 1) suitability of the options grid, including open interest of three figures or greater on the strike prices I would need to use to build a position, 2) implied volatility in the 60th percentile or greater of its 12-month range, and 3) the absence of an earnings announcement within the lifespan of the like options series I would trade. For symbols with odds of success in the bottom third, I also screen for low implied volatility, in the 40th percentile or below, suggesting a covered call play.

-- Tim Bovee, Portland, Oregon, Nov. 30, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 decision decisions for his or her own account, and take responsibility for the consequences.
License

Creative Commons 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.Tss s ss'ss

Monday's Outcomes

I entered a diagonal spread on NXPI.

I rolled GOOGL forward from the DEC options series to the JAN series and updated the analysis with a detailed explanation of my decision.

I exited EA and WMT, each for a profit.

-- Tim Bovee, Portland, Oregon, Nov. 30, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons 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.

NXPI Analysis

Update 3/3/2016: I exited the long leg of my position for a loss, producing an overall loss for the entire series.

Shares declined by 189.0% over 94 days, or a -70% annual rate. The options series produced a 30.9% loss on debit for a -1190% annual rate.




NXPIdiagonal, short leg
optioncreditdebitprofityieldentryexitdays
+c87.5jun2.75-13.70-10.95-79.9%11/30/20153/3/201694
-c90jan5.30-2.802.5089.3%11/30/201512/11/201511
-c85jan4.32-1.402.92208.6%12/11/20151/4/201624
----------------------------------------------------------------------------------------
Status:12.37-17.90-5.53-30.9%129
option description key: long/short, call/put, strike, series



The semiconductor maker NXP Semiconductors N.V. (NXPI), headquartered in Eindhoven, Netherlands, closed above its 20-day price channel on Friday. With a history of bull-signal whipsaws and low implied volatility relative to the one-year range, NXPI is a candidate for a time spread.

[NXPI in Wikipedia]

NXPI

For the long leg, I shall use the JUL series of options, which trades for the last time 228 days hence, on July 15, and for the short leg, the JAN series, which completes trading 46 days from now, on Jan. 16.

Ranges

Implied volatility stands at 39%, which is 2.3 times the VIX, a measure of volatility of the S&P 500 index. NXPI’s volatility stands in the 33rd percentile of its annual range.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper102.84115.46N/A
Lower77.6064.98N/A
Gain/loss14%28.0%
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

NXPI peaked on June 1 at $114 and reversed to the downside, ending a rise that began in October 2011. The stock has produced two bull signals since the peak Both were unsuccessful, on average losing 11.3% over 22 days.

Although the price has been rising since Oct. 29, immediately after an earnings announcement, I judge the movement to be a countertrend correction that will reverse to the downside before reaching $98.09. A break above $98.09 would invalidate my reading of the chart.

The chart is ambiguously bearish: A nearer-term uptrend within a longer-term downtrend.

Set against the bearishness stands the opinion of 15 analysts covering NXPI. Collectively, they come down at an extremely high enthusiasm index of 73%, with 87% giving NXPI a Strong Buy recommendation.

And yet, back in the bear column, Zacks Investment Research gives NXPI an extremely bearish rank of 5. Zacks rank is calculated from earnings estimate revisions.

In part, NXPI's rise is news driven. On Nov. 24 it received a regulatory clearance to sell part of its business. (Read about it here.) That's news report isn't decisive enough to trigger by man on trading news, but it does create a strong likelihood that further news reports will be followed by sudden price moves.

The NXPI picture is ambiguity compounded, which fits the model for a time spread, such as a covered call, a calendar spread or a diagonal. I shall use the diagonal structure in building a trade.

Diagonal spread, long the $87.50 calls expiring July 16, 2016 
and short the $90 calls expiring Jan. 17,
bought with a credit.
Probability of expiring out-of-the-money

StrikeOTM
JUL1687.553.8%
JAN9061.9%

For the long leg, the premium is a $13.70 debit, and for the short leg, a $5.30 credit, for a net $8.40 debit. The stock at the time of entry was priced at $90.96.

Decision for My Account

I've entered a position on NXPI as described above. There is some news risk, and my judgement is that it will balance the bearish cast of the chart, making a diagonal a reasonable strategy.

-- Tim Bovee, Portland, Oregon, Nov. 30, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons 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.

Monday's Agenda

I shall analyze NXPI as a potential diagonal spread.

Also, with 18 days left before the December monthly options expire, it's time to start exiting or rolling my positions. I'll be looking to do so throughout the week, and shall as usual report exits in the "Outcomes" post that moves near the market close.

-- Tim Bovee, Portland, Oregon, Nov. 30, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons 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.

Sunday, November 29, 2015

The Week Ahead: A speculative stew

The conventional wisdom goes like this: Since beginning to sell the idea that the time for anti-inflationary tightening has come, the Federal Open Market Committee has let pass two opportunities to raise the interest rate under its control.

The Dec. 15-16 meeting is the last opportunity for the Fed to tighten before the 2016 election year begins. Tightening action after December will inevitably be given a political spin. The Fed generally avoids politics like the plague. Therefore, the chances for a December bump up in the Fed Funds Rate seem high.

But what if there are signs of a weakening economy? Such is the stuff of a central banker's nightmares.

The employment situation report, including the headline-making unemployment rate,  will be published Friday at 8:30 a.m. New York time. The numbers will get a sneak preview in the form of the ADP employment report, issued by a private-sector payroll company on Wednesday at 8:15 a.m.

Adding to the bubbling speculative stew will be two public appearances this week by Fed Chair Janet Yellen.
  • A speech to the Economic Club of Washington on the economic outlook on Wednesday at 12:25 p.m.
  • Testimony before the Congressional Joint Economic Committee about the economic outlook on Wednesday at 10 a.m.
Two other potential market-movers are on the agenda this week, although neither has impact rivalling that of the jobs numbers. They are the Institute of Supply Management manufacturing index will be released Tuesday at 10 a.m., and international trade, on Friday at 8:30 a.m.

Leading indicators (in descending order of importance):

The interest rate spread between 10-year Treasuries and the federal funds rate, reported continually during market hours.

The M2 money supply, at 4:30 p.m. Friday.

The average hourly workweek in manufacturing from the employment report on Friday at 8:30 a.m.

Manufacturers' new orders for consumer goods and materials from the factory orders report on Thursday at 10 a.m.

Vendor performance, or the deliveries times index, from the ISM manufacturing survey on Tuesday at 10 a.m.

The S&P 500 index, reported continually during market hours.

Average weekly initial claims for unemployment from the jobless claims report on Wednesday at 8:30 a.m.

Manufacturers' new orders for non-defense capital goods from the factory ordrs report on Thursday at 10 a.m.

Events arranged by day:

Monday: Chicago Purchasing Managers index at 9:45 a.m., pending home sales at 10 a.m. and the Dallas Federal Reserve Bank manufacturing survey at 10:30 a.m.

Tuesday: Motor vehicle sales throughout the day, the Purchasing Managers manufacturing index at 9:45 a.m., and the ISM manufacturing index and construction spending, each at 10 a.m.

Wednesday: ADP employment report at 8:15 a.m., productivity and costs at 8:30 a.m., petroleum inventories at 10:30 a.m. and the Federal Reserve "Beige Book" at 2 p.m.

ThursdayJobless claims 8:30 a.m., factory orders and the ISM non-manufacturing index, each at 10 a.m., and M2 money supply at 4:30 p.m.

Friday:  Employment and international trade at 8:30 a.m.

I also keep an eye on the Baltic Dry Index, updated daily, and the 5-year implied inflation rate based on U.S. Treasury yields, which presently stands at 1.38%, up 0.01% from a week earlier.

Treasury Debt

Bills
  • 4-week: Announcement Monday 11 a.m., auction Tuesday 11:30 a.m., settlement Thursday.
  • 3-month: Auction Monday 11:30 a.m., announcement Thursday 11 a.m.
  • 6-month: Auction Monday 11:30 a.m., announcement Thursday 11 a.m.
  • 52-week: Announcement Thursday 11 a.m.
Notes
  • 3-year: Announcement Thursday 11 a.m.
  • 10-year: Announcement Thursday 11 a.m.
Bonds
  • 30-year: Announcement Thursday 11 a.m.
TIPS
  • None.
Fedsters

In addition to Fed Chair Yellen's two appearances (see above), a flurry of Fedsters are flocking to the podiums during the week.

Fed Gov. Lael Brainard addresses the Stanford Institute for Economic Policy Research Associates Meeting in Stanford, California on Tuesday at 8 p.m. New York time. His topic: Lower neutral rate and its implications for monetary policy.

Fed Vice Chairman Stanley Fischer speaks at the Federal Reserve Bank of Cleveland Financial Stability Conference in Washington at on Thursday at 1:10 p.m. His subject: Financial stability and shadow banks.

Yellen, Brainard and Fischer are members of the Federal Open Market Committee.

Three other FOMC members plan appaerances: Chicago Fed Pres. Charles Evans on Tuesday, Atlanta Fed Pres. Dennis Lockhart and San Francisco Fed Pres. John Williams on Tuesday

Two FOMC alternates will speak: Cleveland Fed Pres. Loretta Mester on Thursday and St. Louis Fed Pres. James Bullard on Friday

Two others from among the Fed glitterati will take to the podium: Philadelphia Fed Pres. Patrick Harker and outgoing Minneapolis Fed Pres. Narayana Kocherlakota on Friday

A Federal Reserve open board meeting will be held in Washington on Monday at 8:30 a.m. to discuss implementation of amendments to the Dodd-Frank Act's emergency lending authority provisions.

Analytical universe

This week I shall be analyzing new bull and bear signals among 495 large-cap stocks and exchange-traded funds.

Good trading!



-- Tim Bovee, Portland, Oregon, Nov. 29, 2015

References


Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts


Two social media feeds provide notification whenever something new is posted.
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

Creative Commons License

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

Based on a work at www.timbovee.com

Saturday, November 28, 2015

Monday's Prospects

On Friday, Nov. 27:

Of 503 large-cap stocks and exchange-traded funds in my analytical universe, eight broke beyond their 20-day price channels, all to the upside.

No symbols giving trading signals with high odds of success survived initial screening. High-odds symbols are candidates for directional trades.

One symbol with a trading signal having low odds of success survived initial screening, having broken out to the upside. Low-odds symbols are candidates for non-directional trades and time spreads.

There are no prospects for trades coinciding with earnings announcements.

I shall do further analysis on Monday, Nov. 30.

Trading signal survivors

High-odds
Bull
(none)

High-odds
Bear
(none)

Low-odds
Bull
NXPI

Low-odds
Bear
(none)

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are in the top or bottom thirds, suggesting a directional or non-directional trade, respectively, I next screen for 1) suitability of the options grid, including open interest of three figures or greater on the strike prices I would need to use to build a position, 2) implied volatility in the 60th percentile or greater of its 12-month range, and 3) the absence of an earnings announcement within the lifespan of the like options series I would trade. For symbols with odds of success in the bottom third, I also screen for low implied volatility, in the 40th percentile or below, suggesting a covered call play.

-- Tim Bovee, Portland, Oregon, Nov. 28, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 decision decisions for his or her own account, and take responsibility for the consequences.
License

Creative Commons 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.Tss s ss'ss

Wednesday, November 25, 2015

Friday's Prospects

The U.S. markets are closed on Thursday, Nov. 26, for the Thanksgiving Day holiday.

On Wednesday, Nov. 25:

Of 503 large-cap stocks and exchange-traded funds in my analytical universe, five broke beyond their 20-day price channels, four to the upside and one to the downside.

No symbols with trading signals survived initial screening.

There are no prospects for trades coinciding with earnings announcements.

With no prospects, I shall do no further analysis on Friday, Nov. 27.

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are in the top or bottom thirds, suggesting a directional or non-directional trade, respectively, I next screen for 1) suitability of the options grid, including open interest of three figures or greater on the strike prices I would need to use to build a position, 2) implied volatility in the 60th percentile or greater of its 12-month range, and 3) the absence of an earnings announcement within the lifespan of the like options series I would trade. For symbols with odds of success in the bottom third, I also screen for low implied volatility, at the 40th percentile or below, suggesting a covered call play.

-- Tim Bovee, Portland, Oregon, Nov. 25, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 decision decisions for his or her own account, and take responsibility for the consequences.
License

Creative Commons 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.Tss s ss'ss

Tuesday, November 24, 2015

Wednesday's Prospects

On Tuesday, Nov. 24:

Of 503 large-cap stocks and exchange-traded funds in my analytical universe, two broke beyond their 20-day price channels, one in either direction.

No symbols giving trading signals survived initial screening.

There are no prospects for trades coinciding with earnings announcements.

Without prospects, I shall do further analysis on Wednesday, Nov. 25.

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are in the top or bottom thirds, suggesting a directional or non-directional trade, respectively, I next screen for 1) suitability of the options grid, including open interest of three figures or greater on the strike prices I would need to use to build a position, 2) implied volatility in the 60th percentile or greater of its 12-month range, and 3) the absence of an earnings announcement within the lifespan of the like options series I would trade. For symbols with odds of success in the bottom third, I also screen for low implied volatility, in the 40th percentile or below, suggesting a covered call play.

-- Tim Bovee, Portland, Oregon, Nov. 24, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 decision decisions for his or her own account, and take responsibility for the consequences.
License

Creative Commons 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.Tss s ss'ss

Tuesday's Outcomes

I entered two positions, on DE and XRX.

I rolled forward the short leg of my covered calls on BX.

-- Tim Bovee, Portland, Oregon, Nov. 24, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons 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.

XRX Analysis

Update 3/7/2016: I exited the long leg of my diagonal on XRX, closing out the series with a  small loss.


XRXdiagonal
optioncreditdebitprofityieldentryexitdays
+c10jul0.90-1.28-0.38-29.7%11/24/20153/7/2016104
-c11jan0.35-0.140.21150.0%12/7/20151/6/201630
-c10jan0.48-0.340.1441.2%12/7/20151/6/201630
----------------------------------------------------------------------------------------
Status:1.73-1.76-0.03-1.7%
option description key: long/short, call/put, strike, series


The business process and document management company Xerox Corp. (XRX), headquartered in Norwalk, Connecticut, closed above its 20-day price channel on Tuesday. With low implied volatility relative to its one-year range and low historical odds of a profitable bull signal, XRX is a candidate for a time spread.

[XRX in Wikipedia]

XRX

For the long leg I shall use the JUL series of options, which trades for the last time on July 15, 2016, 234 days from now, and for the short leg, the JAN series, which trades for the last time 52 days hence, on Jan. 16.

Ranges

Implied volatility stands at 40%, which is 2.8 times the VIX, a measure of volatility of the S&P 500 index. XRX’s volatility stands in the 33rd percentile of its annual range.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper12.1613.75N/A
Lower8.987.39N/A
Gain/loss15.1%30.1%
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

XRX has completed two bull signals in the past year, each on average producing a -3.6% loss over 12 days. The low odds of a successful bull signal, combined with low implied volatility relative to the annual range make XRX a candidate for a time spread. I shall today be looking at a possible diagonal spread.

On the chart XRX has been in a downtrend since December. It reversed from a low on Oct. 29 and has risen since, although it remains well below last year's peak.

Zacks Investment Research is somewhat bearish on XRX, giving it a rank of 4.

Analyst coverage of XRX is sparse, at only six. In aggregate they show a bearish -17% enthusiasm index. One third give XRX a strong buy recommendation.

Diagonal spread, long the $10 calls expiring July 16, 2016 
and short the $11 calls expiring Jan. 17,
bought with a credit.
Probability of expiring out-of-the-money

StrikeOTM
JUL1050.5%
JAN1167.0%

The long leg debit is $1.28 and the short leg credit, $0.35, a yield of 27%. I have not yet set a standard for the short leg yield off the long leg, but recent time spreads have produced around 18%, so XRX's yield is on the high side.

The share price at time of entry was $10.53.

Decision for My Account

I have entered a position on XRX as described above.

-- Tim Bovee, Portland, Oregon, Nov. 24, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons 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.

DE Analysis

Update 1/4/2016: DE reached 51% of its potential profit and I exited the position.

Shares rose by 0.5% over 41 days, or a +4% annual rate. The options position produced a +103% yield on debit for a +913% annual rate

The heavy equipment company Deere & Co. (DE), headquartered in Moline, Illinois, publishes earnings on Wednesday before the opening bell.

[DE in Wikipedia]

DE

I shall use the JAN series of options, which trades for the last time 52 days hence, on Jan. 16.

Ranges

Implied volatility stands at 44%, which is 2.6 times the VIX, a measure of volatility of the S&P 500 index. DE’s volatility stands in the 84th percentile of its annual range.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper86.2498.4681.38
Lower61.8049.5866.66
Gain/loss16.5%33.0%
Implied volatility 1 and 2 standard deviations; maximum earns move

The most recent earnings announcement, on Aug. 24, produced an 8.1% decline, a major outlier among the other announcements of the past year.

Excluding the outlier, the range implied by the maximum earnings move is $77.91 to $70.13.

The Trade

DE has been in a strong downtrend since June 30.

Zacks Investment Research, in line with the chart, is somewhat bearish on DE, giving it a Rank of 4, with no expectation of an earnings surprise.

Half of the last four earnings announcements have resulted in next-day price rises.

Analysts in aggregate are quite negative about DE's prospects, with an enthusiasm index of -76. However, 12% of analysts covering the symbol give it a strong buy recommendation.

I shall construct a bearish position in anticipation of a post-earnings decline.
Bear call spread, short the $77.50 calls and long the $80 calls,
sold for a credit and expiring Jan. 17.
Probability of expiring out-of-the-money

JANStrikeOTM
77.566.6%

The premium is $0.80, which is 32% of the width of the position’s wings. The stock at the time of entry was priced at $74.54.

The risk/reward ratio is 2.1:1.

The strike price is $2.96 above the market price. The biggest immediate move after each of the past four earnings announcements was $7.36, and the average was $3.19. Excluding the large decline after the most recent earnings announcement, the average movement would be $1.80 and the largest, $3.89.

Decision for My Account

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

-- Tim Bovee, Portland, Oregon, Nov. 24, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons 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.

Tuesday's Agenda

Both prospects on my desk this morning remain viable candidates for trades, and I shall post full analyses.

The symbols are DE for a volatility play corresponding with an earnings announcement, and XRX as a time spread.

-- Tim Bovee, Portland, Oregon, Nov. 24, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons 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.

Monday, November 23, 2015

Tuesday's Prospects

On Monday, Nov. 23:

Of 503 large-cap stocks and exchange-traded funds in my analytical universe, six broke beyond their 20-day price channels, five to the upside and one to the downside.

No symbols giving trrading signals with high odds of success survived initial screening. High-odds symbols are candidates for directional trades.

One symbol with a trading signal having low odds of success survived initial screening, having broken out to the upside. Low-odds symbols are candidates for non-directional trades and time spreads.

There is one prospect for a trade coinciding with an earnings announcements.

I shall do further analysis on Tuesday, Nov. 24.

Trading signal survivors

High-odds
Bull
(none)

High-odds
Bear
(none)

Low-odds
Bull
XRX

Low-odds
Bear
(none)

Potential trades keyed to events

The dates are those of the events, all of them earns announcements. Events prior to the opening bell are marked "am", during the trading day "mid", and after the closing bell "pm".


Tuesday pm
(none)
Wednesday am
DE

Methodology

The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.

I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.

For symbols whose odds of success are in the top or bottom thirds, suggesting a directional or non-directional trade, respectively, I next screen for 1) suitability of the options grid, including open interest of three figures or greater on the strike prices I would need to use to build a position, 2) implied volatility in the 60th percentile or greater of its 12-month range, and 3) the absence of an earnings announcement within the lifespan of the like options series I would trade. For symbols with odds of success in the bottom third, I also screen for low implied volatility, in the 40th percentile or below, suggesting a covered call play.

-- Tim Bovee, Portland, Oregon, Nov. 23, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts

Two social media feeds provide notification whenever something new is posted.
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 decision decisions for his or her own account, and take responsibility for the consequences.
License

Creative Commons 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.Tss s ss'ss

Monday's Outcomes

I entered new positions on ADI, DLTR, QIHU and TIF coincident to earnings announcements.

I rolled forward the short leg of my ASML time spread.

I analyzed PANW but declined the trade.

-- Tim Bovee, Portland, Oregon, Nov. 23, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons 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.

PANW Analysis

The network security company Palo Alto Networks Inc. (PANW), headquartered in Santa Clara, California, publishes earnings on Monday after the closing bell.

[PANW in Wikipedia]

PANW

I shall use the JAN series of options, which trades for the last time 53 days hence, on Jan. 16.

Ranges

Implied volatility stands at 46%, which is triple times the VIX, a measure of volatility of the S&P 500 index. PANW’s volatility stands in the 46th percentile of its annual range.

My requirement is that the implied volatility percentile be at the 50th or greater of the annual range. PANW started the day in the 51st percentile but declined to the 46th while I placed other trades. (My practice is to analyze and place trades in descending order of the IV percentile, meaning that PANW was the caboose on this particular train.)

Given the new conditions, I can go directly to a decision without further analysis.

Decision for My Account

PANW's low implied volatility relative to its annual range disqualifies from an earnings trade at this point. I plan no further analysis and am passing on the trade.

-- Tim Bovee, Portland, Oregon, Nov. 23, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Alerts


Two social media feeds provide notification whenever something new is posted.

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

Creative Commons 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.