CVX Analysis

The oil and natural gas company Chevron Corp. (CVX), headquartered in San Ramon, California, closed above its 20-day price channel on Tuesday. With low historical odds of a successful bull signal and high implied volatility relative to its range of the last 12 months, the stock is a candidate for a direction-neutral play

[CVX in Wikipedia]

CVX

I shall use the FEB series of options, which trades for the last time 65 days hence, on Feb 20.

Ranges

Implied volatility stands at 38%, which is double the VIX, a measure of volatility of the S&P 500 index. CVX’s volatility stands in the 70th percentile of its annual range.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	103.95	114.27	N/A
Lower	93.31	72.99	N/A
Gain/loss	11.0%	22.0%

Implied volatility 1 and 2 standard deviations; maximum earns move
The Trade

CVX has completed three bull signals in the past year. One was successful, yielding 8.7% over 42 days. Two were unsuccessful, on average losing -2.6% over 20 days. The resulting success rate is 33.3%.

In common with the fossil fuels sector of which it is a part, CVX declined sharply from July 2014 to August 2015. It then entered a counter-trend bounce to the upside that peaked on Nov. 3, and is presently about $5 below the peak.

Analysts in aggregate are positive about CVX's prospects, giving it a 6% enthusiasm rating, with 44% of them issue Strong Buy recommendations.

Iron condor, short the $100 calls and long the $105 calls,
short the $80 puts and long the $75 puts,
sold for a credit and expiring Feb. 21.
Probability of expiring out-of-the-money

FEB	Strike	OTM
Upper	100	76.2%
Lower	80	76.6%

The premium is $1.75, which is 35% of the width of the position’s wings. The stock at the time of entry was priced at $92.56.

The risk/reward ratio is 1.9:1.

The zone of profit in the proposed trade covers a $12.50 move either way.

Decision for My Account

I placed an order on CVX as described above but was unable to get a fill. I am abandoning the trade and shall not reinstate it today.

-- Tim Bovee, Portland, Oregon, Dec. 16, 2015

References

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


Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading. 

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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.