[HRB in Wikipedia]
HRB
I shall use the APR series of options, which trades for the last time 43 days hence, on April 17.
Ranges
Implied volatility stands at 60%, which is 1.9 times the VIX, a measure of volatility of the S&P 500 index. HRB’s volatility stands in the 00 percentile of its most recent range. The price used for analysis was $32.72.
| Week | SD1 68.2% | SD2 95% | Earns |
|---|---|---|---|
| Upper | 36.38 | 40.04 | 35.30 |
| Lower | 29.06 | 25.40 | 30.14 |
| Gain/loss | ±$3.66 | ±$7.32 | ±$2.58 |
The Trade
HRB moved into a downtrend on Dec. 7, 2015 and bounced off of its low of Jan. 20 in a countertrend rally that remains well below the previous high. The trend since Feb. 8 has been downward, remaining above the previous low.
Brokerages in aggregate give HRB a 29% enthusiasm index, with 57% of seven analysts issuing strong buy recommendations.
The stock closed higher on the next trading session after two of the last four earnings announcements.
I shall structure the trade as direction neutral.
short the $29 puts and long the $28 puts,
sold for a credit and expiring April 18.
Probability of expiring out-of-the-money
| APR | Strike | OTM |
|---|---|---|
| Upper | 35 | 79.4% |
| Lower | 29 | 81.3% |
The risk/reward ratio is 3:1.
The zone of profit in the proposed trade covers a $3 move either way. The biggest immediate move after each of the past four earnings announcements was $2.58, and the average was $1.79. After eliminating the maximum and minimum post-earnings movements, the core tendency is $1.94.
Decision for My Account
There's insufficient profit in this trade. My standard trade sizing -- a position with about $500 risk -- would mean seven contracts in the position, for a maximum potential profit of $175. My target exit point is 50% of maximum profit, which means I would earn $87.50. That's to small a payday. I won't enter a position without a target profit of at east $100.
I'm passing on the trade. I won't be opening a position on HRB.
-- Tim Bovee, Portland, Oregon, March 3, 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.
- On Twitter, Follow Tim Bovee: https://twitter.com/TimBovee
- On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader
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.
No comments:
Post a Comment