Monday, February 1, 2016

DOW Analysis

Update 3/19/2016: The put options in my DOW iron condor have expired without value.

Overall, shares rose by 21.8% over 47 days, or a +188% annual rate. The options position produced a 73.0% loss on debit for a -567% annual rate.

Update 3/15/2016: I exited the call portion of the iron condor for a $1.00 debit. The remaining bull put spread will expire without value at the end of the week, and I shall calculate the position's loss then.

The plastics, chemicals and agricultural products manufacturer Dow Chemical Co. (DOW), headquartered in Midland, Michigan, publishes earnings on Tuesday before the opening bell.

[DOW in Wikipedia]


I shall use the MAR series of options, which trades for the last time 46 days hence, on March 18.


Implied volatility stands at 00%, which is !0 times the VIX, a measure of volatility of the S&P 500 index. DOW’s volatility stands in the 00 percentile of its most recent range.

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

The share price used in analysis was $42.16.

The Trade

DOW's post-recession uptrend ended in September 2014, sending the price into series of zig-zags with a net sideways movement that included a Last Hurrah push to a new high on Dec. 9, 2015.

The price then fell swiftly but remains above primary support set Aug. 24, 2015 in the China Panic and a secondary support level set on Sept. 28, 2015.

Although DOW is presently in a leg down, it is impossible to say with certainty that the uptrend is over.

DOW's price rose immediately after three of the last four earnings announcements.

Brokerages in aggregate give dow a negative 21% enthusiasm rating, with 36% of 14 analysts issuing strong buy recommendations.

The weight of the evidence leaves me direction neutral, so I shall structure my proposed trade as an iron condor.

Iron condor, short the $46 calls and long the $47 calls,
short the $37 puts and long the $36 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money

The premium is $0.27, which is 27% of the width of the position’s wings. The stock at the time of entry was $42.42

The risk/reward ratio is 1.9:1.

The zone of profit in the proposed trade covers a $9.00 move either way. The biggest immediate move after each of the past four earnings announcements was $2.44, and the average was $1.91. After eliminating the maximum and minimum post-earnings movements, the core tendency is $2.11.

Decision for My Account

I entered a position on DOW as described above.

-- Tim Bovee, Portland, Oregon, Feb. 1, 2016


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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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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