Sunday, January 31, 2016

The Week Ahead: Jobs, income, manufacturing, trade

The employment situation report takes a comprehensive look at who's working, who's looking and who's given up, on Friday at 8:30 a.m. New York time. A private-sector payroll company, ADP LLC, gives a sneak preview with the ADP employment report on Wednesday at 8:15 a.m.

Three other potential market movers are on the agenda for the week: On Monday, personal income and outlays at 8:30 a.m. and the Institute of Supply Management manufacturing index at 10 a.m. and, on Friday, international trade 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. Thursday.

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

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

Vendor performance, also called the deliveries times index, from the ISM manufacturing survey, at 10 a.m. Monday.

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

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

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

Events arranged by day:

Monday: Personal income and outlays at 8:30 a.m., the Purchasing Managers Institute manufacturing index at 9:45 a.m., and the ISM manufacturing index and construction spending, each at 10 a.m.

Tuesday: Motor vehicle sales throughout the day.

Wednesday The ADP employment report at 8:15 a.m., the ISM non-manufacturing index at 10 a.m. and petroleum inventories at 10:30 a.m.

Thursday: Jobless claims and productivity and costs, each at 8:30 a.m.,  factory orders at 10 a.m. and the M2 money supply at 4:30 p.m.

Friday: The employment situation and international trade, each 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 1.29%, up 0.06% 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., settlement Thursday.
  • 6-month: Auction Monday 11:30 a.m., announcement Thursday 11 a.m., settlement Thursday.
  • 52-week: Auction Thursday 11:30 a.m., settlement Thursday
Notes
  • 2-year: Settlement Monday.
  • 3-year: Announcement Wednesday 8:30 a.m.
  • 5-year: Settlement Monday.
  • 7-year: Settlement Monday.
  • 10-year: Announcement Wednesday 8:30 a.m.
Bonds
  • 30-year: Announcement Wednesday 8:30 a.m. 
TIPS
  • None.
Fedsters

Fed Vice-Chairman Stanley Fischer discusses recent monetary policy at the Council on Foreign Relations on Monday in New York City at 1 p.m.

Two other members of the Federal Open Market Committee take to the podium: Kansas City Fed Pres. Esther George on Tuesday and Cleveland Fed Pres. Loretta Mester on Thursday.

Analytical universe

This week I shall be analyzing new trading signals from among 463 large-cap stocks and exchange-traded funds.

Good trading!



-- Tim Bovee, Portland, Oregon, Jan. 31, 2016

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

Friday, January 29, 2016

Monday's Prospects

On Friday, Jan. 29:

Of 463 large-cap stocks and exchange-traded funds in my analytical universe, 27 broke beyond their 20-day price channels, all to the upside. None survived initial screening.

There are two prospects for trades coinciding with earnings announcements.

I shall do further analysis on Monday, Feb. 1.

Earnings season began Jan. 11. The higher pace of announcements will continue for about six weeks.

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".


Monday pm
APC
Tuesday am
BAX

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, Jan. 29, 2016

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

Friday's Outcomes

I exited two positions for profits: AAPL and INTC.

-- Tim Bovee, Portland, Oregon, Jan. 29, 2016

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.

Thursday, January 28, 2016

Friday's Prospects

On Thursday, Jan. 28:

Of 463 large-cap stocks and exchange-traded funds in my analytical universe, 11 broke beyond their 20-day price channels, seven to the upside and four to the downside. None survived initial screening.

There are no prospects for trades coinciding with earnings announcements.

Lacking prospects, I shall do further analysis of potential new positions on Friday, Jan. 29.

Earnings season began Jan. 11. The higher pace of announcements will continue for about six weeks.

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, Jan. 28, 2016

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

Thursday's Outcomes

I entered a position on AAL coinciding with an earnings announcement.

I also analyzed MSFT as a potential earnings play but declined to enter a position because of difficulties with the options grid.

I exited FB for a profit produced by a sharp post-earnings rise.

-- Tim Bovee, Portland, Oregon, Jan. 28, 2016

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.

MSFT Analysis

The software/hardware company Microsoft Corp. (MSFT),  headquartered in Redmond, Washington, publishes earnings on Thursday after the closing bell.

[MSFT in Wikipedia]

MSFT

I shall use the MAR series of options, which trades for the last time 50 days hence, on March 18.

Ranges

Implied volatility stands at 38%, which is 1.7 times the VIX, a measure of volatility of the S&P 500 index. MSFT’s volatility stands in the 76th percentile of its most recent range.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper59.0466.3456.58
Lower44.4337.1346.90
Gain/loss±$7.30±$14.61±$4.84
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

MSFT has been in an uptrend since April 2009, with the most recent leg to the upside beginning from the China Panic low on Aug. 24, 2015. It has retreated somewhat sharply from a high of Dec. 30, 2015 but remains above recent support.

Two out of the last four earnings announcements have been followed by a higher close to the next trading session.

Changes in analyst expectations suggest the likelihood of an upside earnings surprise, based on methodology developed by Zacks Investment Research that has a 70% chance of being accurate. Brokers in aggregate give MSFT a 33% enthusiasm index, with 57% of 21 analysts issuing strong buy recommendations.

Based on the evidence, I shall structure the position as a bull put options spread.

Bull put spread, short the $50 puts and long the $45 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money


MARStrikeOTM
5058.9%

The premium is $1.20, which is 24% of the width of the position’s wings.

The risk/reward ratio is 3.2:1.

The zone of profit in the proposed trade covers a $1.70 move below the strike price and has no boundary above the strike. The biggest immediate move after each of the past four earnings announcements was $484, and the average was $2.57. After eliminating the maximum and minimum post-earnings movements, the core tendency is $2.28.

Decision for My Account

Although a 3.2:1 risk/reward ratio is acceptable, it is high for a vertical spread. The grid structure requires me to accept more risk than I'm willing to do. For that reason, I am passing on MSFT. No trade.

-- Tim Bovee, Portland, Oregon, Jan. 28, 2016

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

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.

AAL Analysis

Update 2/17/2016: AAL reached 52% of its potential and I exited for a profit. Shares rose by 5.1% over 19 days, or a +98% annual rate. The options position produced a 106.3% yield on debit for a +2,041% annual rate.

The airline company American Airlines Group Inc. (AAL), headquartered in Fort Worth, Texas, publishes earnings on Friday before the opening bell.

[AAL in Wikipedia]

AAL

I shall use the MAR series of options, which trades for the last time 50 days hence, on March 18.

Ranges

Implied volatility stands at 50%, which is 2.1 times the VIX, a measure of volatility of the S&P 500 index. AAL’s volatility stands in the 81st percentile of its most recent range. The stock price used in analysis is $38.52

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper45.6152.7054.18
Lower31.4324.3422.86
Gain/loss±$7.09±$14.18±$15.66
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

AAL has limited chart history since going public in December 2013 as a reorganized company. The stock has been trending downward since January 2015 but remains above both its IPO price and a major low set in October 2014. At this point I would judge the chart as showing an uptrend undergoing a counter-trend correction.

Two of the last four earnings announces have been followed by a higher close to the next trading session.

Changes in analyst assessments suggest the likelihood of a positive earnings surprise, based on the method used by Zacks Investment Research, which the company says is accurate 70% of the time.

Brokers in aggregate give AAL a 17% enthusiasm index, with 58% of 12 analysts issuing strong buy recommendations.

The preponderance of the evidence suggests a bull play to me, and I shall structure the position as a bull put options spread.

Bull put spread, short the $36 puts and long the $35 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money
MARStrikeOTM
3658.4%
The premium is $0.33, which is 33% of the width of the position’s wings. The stock at the time of entry was priced at $37.88.

The risk/reward ratio is 2:1.

The zone of profit in the proposed trade covers a $1.88 move to the downside and is profitable without a boundary to the upside. The biggest immediate move after each of the past four earnings announcements was $15.66, and the average was $7.64. After eliminating the maximum and minimum post-earnings movements, the core tendency is $7.28.

Decision for My Account

I have entered a position on AAL as described above.

-- Tim Bovee, Portland, Oregon, Jan. 28, 2016

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

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.

Thursday's Agenda

Four symbols are on my desk this morning, all of them potential earnings plays: AAL, ABBV, CVX, MSFT. As I noted at the outset of the week, I'm limiting myself to five new positions in order to preserve capital for later earnings plays and to provide grater calendar diversification of my holdings.

ABBV is a pharmaceutical company, a sector in which I have had little luck because many of the moves are due to regulatory decisions that are beyond my ken as a trader. I'm passing on it without a full analysis.

CVX has come in this morning with implied volatility in the 57th percentile of its recent range. I prefer 66% and above -- the upper third -- so I'm passing on CVX as well, without further analysis.

That leaves two. AAL has the more granular strike prices with respect to the stock price, with an interval index of 40 (stock price/strike price interval). MSFT has an interval index of 21.

I'll analyze AAL first and MSFT second. I've placed four trades so far this week, out of the maximum of five that I'm allowing myself. Under the normal course of things, I would need to choose one or the other.

However, my FB position went wildly profitable after the company published earnings and I have exited, freeing up a slot.

And looking ahead to Friday, I have no prospective earning play. The one that came closest, HAIN, has insufficiently high open interest to meet my stands.

So if I like the cut of their jibs, I'll open positions on both.

-- Tim Bovee, Portland, Oregon, Jan. 28, 2016

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.

Wednesday, January 27, 2016

Thursday's Prospects

On Wednesday, Jan. 27:

Of 463 large-cap stocks and exchange-traded funds in my analytical universe, one broke beyond its 20-day price channels, to the downside. It failed to survive initial screening.

There are four prospects for trades coinciding with earnings announcements.

I shall do further analysis on Thursday, Jan. 28.

Earnings season began Jan. 11. The higher pace of announcements will continue for about six weeks.

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".


Thursday pm
MSFT
Friday am
AAL
ABBV
CVX

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, Jan. 27, 2016

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's Outcomes

I entered a trade on FB coinciding with an earnings announcement.

I rolled forward the short leg of my time spread on UNG.

-- Tim Bovee, Portland, Oregon, Jan. 27, 2016

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.

FB Analysis

Update 1/28/2016: FB rose sharply in the trading session after earnings were published and I exited for profit.

Shares rose by 10.6% in a day, or a +3,885% annual rate. The options position produced a +193.9% yield on debit for a +70,788% annual rate.

The social networking company Facebook Inc. (FB), headquartered in Menlo Park, California, will publish earnings on Wednesday after the closing bell.
[FB in Wikipedia]

FB

I shall use the MAR series of options, which trades for the last time 51 days hence, on March 18.

Ranges

Implied volatility stands at 45%, which is 1.9 times the VIX, a measure of volatility of the S&P 500 index. FB’s volatility stands in the 67th percentile of its most recent range. The price used in analysis was $96.09

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper112.27128.45100.91
Lower79.7163.7391.27
Gain/loss±$16.18±$32.36±$4.82
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

FB has been in an uptrend since September 2012, the fifth month after the company went public. The trend hit a high on Nov. 5, 2015 and then reversed. However, it remains above the prior reversal low set during the China Panic of Aug. 24, 2015, and so according to the normal rules of chart analysis, the uptrend remains in place.

In two of the last four earnings announcements the price has closed higher in the next trading session.

Changes in analysts' assessment of FB suggest the likelihood of a positive earnings surprise.

Brokerages in aggregate award FB an extremely high enthusiasm of 79%, with 82% of 29 analysts issuing strong buy recommendations.

FB's beta is 0.86, meaning that it correlates with the S&P 500 but with somewhat narrower swings.

The choice here is how much credence to give to the expectation of an earnings surprise. It is based on work by Zacks Investment Research, which gives the forecasting method a 70% of being accurate, not bad odds at all.

Bull put spread, short the $95 puts and long the $92.50 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money
MARStrikeOTM
9550.9%
The premium is $0.97, which is 39% of the width of the position’s wings. The stock at the time of entry was priced at $96.36.

The risk/reward ratio is 1.6:1.

The zone of profit in the proposed trade covers a $1.36 to the downside, meaning that a downward move will quickly turn the position unprofitable, although a move of any magnitude to the upside will make money.

The biggest immediate move after each of the past four earnings announcements was $4.82, and the average was $2.65. After eliminating the maximum and minimum post-earnings movements, the core tendency is $2.00.

The alternative would be a $110/$85 iron condor, which would cover the maximum post-earnings price movement and would provide about a 77% likelihood of profit to the upside. However, it would come at the cost of much greater risk of 4.7:1 in case the trade turned sour. Also, the high risk means that the potential profit wouldn't be worth my while.

Decision for My Account

I have opened a bull put spread position on FB as described above.

-- Tim Bovee, Portland, Oregon, Jan. 27, 2016

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 practitioner 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

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.

Wednesday's Agenda

I am staring this morning at eight stock symbols lying on my desk, each on the verge of being hit by an earnings announcement: They are, in descending volume order, FB, BABA, QCOM, CAT, ABT, BMY, MO and LVS.

I said on Monday that my goal was four or five new positions for the week. I've entered three so far, so if I'm true to my resolve, I have one or two left. I shall be merciless in weeding the eight down to a number that will allow me to achieve that goal.

Looking ahead, I have five potential earnings plays for Thursday and one for Friday. So it is in my interest to pick one entry today, keeping one in reserve for the last two days of the week.

Let's weed the garden.

Two of the symbols are pharmaceutical companies, a sector that has never been friendly to profits the way I trade. Perhaps it is because pharma is more dependent on regulatory news than other sectors are, making them impervious to my odds-based analysis. So out goes ABT and BMY.

BABA, although traded in New York, is mainly dependent upon China, whose stock market and economy are presently suffering through a crisis of confidence. It is a crisis that has prompted the government to intervene repeatedly to support the stock market. In this case, as in pharma, regulation is a poor environment for my trading system to thrive in. So, it's bye bye to BABA.

Of the five symbols remaining, MO and LVS have lower volume than the rest. They are in the two lowest quintiles of the list, so I shall summarily dismiss them on the theory that the more the liquidity, the better the trade.

And then there were three: FB, QCOM and CAT. I shall analyze them in that order with the aim of finding one trade. It's a sudden death contest, on the model of the Hunger Games. If FB wins, then I won't look at the others; if it loses, then QCOM will get a shot.

So, let the games begin.

-- Tim Bovee, Portland, Oregon, Jan. 27, 2016

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, January 26, 2016

Wednesday's Prospects

On Tuesday, Jan. 26:

Of 463 large-cap stocks and exchange-traded funds in my analytical universe, eight broke beyond their 20-day price channels, all to the upside. None survived initial screening.

There are eight prospects for trades coinciding with earnings announcements.

I shall do further analysis on Thursday, Jan. 27.

Earnings season began Jan. 11. The higher pace of announcements will continue for about six weeks.

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".


Wednesday pm
FB
LVS
QCOM
Thursday am
ABT
BABA
BMY
CAT
MO


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, Jan. 26, 2016

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 coinciding with earnings announcements: AAPL and HES.

I analyzed BIIB as a potential roll forward coinciding with earnings but declined to take the trade.

-- Tim Bovee, Portland, Oregon, Jan. 26, 2016

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.

HES Analysis

Update 3/15/2016: I exited HES for a loss after an assignment as expiration neared. 

The assignment of the $40 short calls placed short shares of HES in my account for a $40 per share credit. I in turn sold the shores for $48.27 a share and exited the long calls for a $5.83 per share credit.

During the lifespan over the position shares rose by 36.5% over 49 days, or a +472% annual rate. The options position, including the assigned shares, produced a 3.7% loss on debit for a -27% annual rate.

The oil and natural gas exploration and production company Hess. Corp. (HES), headquartered in New York City, publishes earnings on Wednesday before the opening bell.

[HES in Wikipedia]

HES

I shall use the MAR series of options, which trades for the last time 52 days hence, on March 18.

Ranges

Implied volatility stands at 75%, which is 3.2 times the VIX, a measure of volatility of the S&P 500 index. HES’s volatility stands at the peak of its most recent range. The price used for analysis was $35.74.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper45.8555.9641.33
Lower25.6315.5230.55
Gain/loss±$10.11±$20.22±$5.59
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

Some people are dog people; some are cat people. To trade oil stocks on HES, you've got to love bears. The sector has been declining furiously since June 2014, and despite a couple of counter-trend corrections, it has yet to level out. Any trader in oil will be bearish; the fear each must feel is that they will be wiped out by a sudden reversal prompted by policy decisions made in Riyadh or Tehran.

The most recent leg down began Oct. 9, 2015. It reversed, slightly, on Jan. 20, but then after a few days turned back to the downside. The beta stands at 1.76, meaning that HES correlates with the S&P 500, but with much wider moves.

The pattern of change in analyst expectations suggests the strong likelihood of a negative earnings surprise. Analysts in aggregate come down at a negative 6% enthusiasm index, with 44% of 16 analysts issuing strong buy recommendations.

This is a difficult grid to work with, since open interest is clumped around fewer strike prices than normal. For example, for calls the three-digit open interest jumps from a 74% probability of expiring out of the money to an 88% probability; for calls the jump is from 76% to $88%.

That makes it difficult to build an iron condor. But I can make a bear call spread work.
Bear call spread, short the $40 calls and long the $42.5 calls,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money

MARStrikeOTM
4074.3%
The premium is $0.60, which is 24% of the width of the position’s wings. The stock at the time of entry was priced at $35.33.

The risk/reward ratio is 3.1:1.

The zone of profit in the proposed trade covers a $4.26 move above the strike price and is profitable without a boundary to the downside. The biggest immediate move after each of the past four earnings announcements was $5.59, and the average was 1.79. After eliminating the maximum and minimum post-earnings movements, the core tendency is $0.70. The zone of profit fails to cover the maximum move from provides excellent coverage of the average and core tendency.

Decision for My Account

I've opened a position on HES as described above.

-- Tim Bovee, Portland, Oregon, Jan. 26, 2016

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

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.

AAPL Analysis

Update 1/29/2016: AAPL reached 50% of its potential profit and I exited.

Shares declined by 3.8% over three days, or a -461% annual rate. The options position produced a 100% yield on debit for a +12,167% annual rate.

The consumer electronics company Apple Inc. (AAPL), headquartered in Cupertino, California, publishes earnings on Tuesday after the closing bell.

[AAPL in Wikipedia]

AAPL

I shall use the MAR series of options, which trades for the last time 52 days hence, on March 18.

Ranges

Implied volatility stands at 42%, which is 1.8 times the VIX, a measure of volatility of the S&P 500 index. AAPL’s volatility stands in the 85th percentile of its most recent range. The price used for analysis was $99.07.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper114.76130.46107.4-
Lower83.3867.6890.74
Gain/loss±$15.69±$31.39±$8.33
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

APPL has been in a downtrend since April 28, 2015. The stock reached its lowest low since the peak on Aug. 24, 2015, rallied up while staying below the April high, and then declined again while staying above the August low. The chart can be interpreted as either the resumption of the downtrend or a sideways pause. The beta is 0.91, meaning that AAPL correlates with the S&P 500 but with slightly narrower movements.

One of the last four earnings announcements has been followed by a price rise the next trading session. The pattern of changing analyst opinion caries no expectation of an earnings surprise.

Analysts in aggregate come down with a 47% enthusiasm index -- quite a high level -- with 69% of 32 analysts issuing a strong buy recommendation.

Iron condor, short the $110 calls and long the $115 calls,
short the $85 puts and long the $80 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money

MARStrikeOTM
Upper11081.1%
Lower8583.9%
The premium is $1.18, which is 24% of the width of the position’s wings. The stock at the time of entry was priced at $99.99.

The risk/reward ratio is 3.2:1.

The zone of profit in the proposed trade covers a $12.50 move either way. The biggest immediate move after each of the past four earnings announcements was $8.33, and the average was $4.33. After eliminating the maximum and minimum post-earnings movements, the core tendency is $4.13.

Decision for My Account

I have entered a position on AAPL as described above.

-- Tim Bovee, Portland, Oregon, Jan. !#, 2016

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

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.

BIIB Interim Analysis

The pharmaceutical house Biogen Inc. (BIIB), headquartered in Cambridge, Massachusetts, publishes earnings on Wednesday before the opening bell.

[BIIB in Wikipedia]

BIIB

This analysis is for a roll forward of a series that has existed since October 2015, but since the roll is keyed to earnings, I shall file this separate analysis. I'll also update the original analysis and shall maintain it as the primary record.

For this roll forward, I shall use the FEB series of options, which trades for the last time 24 days hence, on Feb. 20. I'm using the earlier series because the MAR series has insufficient open interest to support the trade.

Ranges

Implied volatility stands at 46%, which is double the VIX, a measure of volatility of the S&P 500 index. BIIB’s volatility stands in the 96th percentile of its most recent range. The price used for analysis is $258.55.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper303.85349.15388.80
Lower213.25167.95128.30
Gain/loss±$45.30±$90.60±$130.25
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

BIIB has been in a downtrend since March 2015, although it has been in a sideways pause since Aug. 21, 2015. The most recent leg, to the downside, began Dec. 29, 2015. The beta is 0.88, meaning that BIIB tends to correlate with the S&P 500 but narrower moves.

Two of the past four earnings announcements have resulted in a price increase in the next trading session.

The pattern of changing analyst recommendations suggests the likelihood of an upside earnings surprise, which is contrary to the bear call spread that I'm rolling forward. Analysts in aggregate give BIIB a 22% enthusiasm rating -- on the high side -- with 57% of 23 analysts issuing a strong buy recommendation.

Given the expectation of a positive earnings surprise, I shall further hedge my bear call spread with an bull put spread, creating an iron condor that provides a wider zone of the profit in both directions.

Iron condor, short the $285 calls and long the $290 calls,
short the $235 puts and long the $230 puts,
sold for a credit and expiring Feb. 21.
Probability of expiring out-of-the-money

FEBStrikeOTM
Upper28579.1%
Lower23578.5%

The premium is $1.87, which is 37% of the width of the position’s wings. The stock at the time of entry was priced at $0.

The risk/reward ratio is 1.7:1.

The zone of profit in the proposed trade covers a $25 move either way. The biggest immediate move after each of the past four earnings announcements was $130.25, and the average was $62.91. After eliminating the maximum and minimum post-earnings movements, the core tendency is $55.42.

Decision for My Account

The best zone of profit I can get leaves the prior post-earnings moves largely uncovered, even the core tendency. It fails to cover the one standard deviation range. Widening the range moves the potential loss beyond what I'm willing to take.

I'm passing on this roll and, after earnings are announced, will look to roll forward as a bear call spread or to exit the series for a loss.

-- Tim Bovee, Portland, Oregon, Jan. 26, 2016

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

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.