Tuesday, November 17, 2015

EA Analysis

Update 11/30/2015: EA reached 52% of its maximum potential profit and I exited to avoid further time risk.

Shares declined by 1.4% over 13 days, or a -38% annual rate. The options position produced a 114.0% yield on debit for a +3,201% annual rate.

The digital gaming company Electronic Arts Inc. (EA),  headquartered in Redwood City, California, closed below its 20-day price channel on Monday. With high volatility and low historical odds of a valid bear signal, it is a candidate for a non-directional trade.

[EA in Wikipedia]


I shall use the DEC series of options, which trades for the last time 31 days hence, on Dec. 18.


Implied volatility stands at 49%, which is 2.8 times the VIX, a measure of volatility of the S&P 500 index. EA’s volatility stands in the 96th percentile of its annual range.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

Zacks Investment Research gives EA a rank of 1, or extremely bullish. That assessment is contrary to Monday's trading signal.

My analysts enthusiasm index comes in bullish as well, at 52.9%.

EA has given two bear signals over the past year, both of them unsuccessful, with an average loss of 2.6% over 14 days. Such odds suggest that EA's bear signals are prone to whipsaws.

I shall build the trade as a direction-neutral position.

Iron condor, short the $75 calls and long the $80 calls,
short the $60 puts and long the $55 puts,
sold for a credit and expiring Dec. 19.
Probability of expiring out-of-the-money


The premium is $1.07, which is 21% of the width of the position’s wings. The stock at the time of entry was priced at $69.03.

The risk/reward ratio is 3.7:1.

The zone of profit in the proposed trade covers a $7.50 move either way.

Decision for My Account

I have opened a position on EA as described above.

-- Tim Bovee, Portland, Oregon, Nov. 17, 2015


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