Where Are The Trades?

The Prospects posts of late have become a sad litany of would-be trading signals that failed to achieve stardom: "None survived initial screening."

We are, of course, in between earnings seasons, so it is natural that trading would drop off a bit. But this intra-season period seems even more fallow that most.

What's going on here? Where are the trades?

I see two influences that have cut back on potential trades.

First, this year I switched the options I use for trading to further out expiration, with a goal of 42 days and a range from 30 to 60 days. Before the switch, I was going as short as two weeks out in some cases.

The longer holding period means that my rule against trading when earnings are near has a longer impact than before. Under the old norms I could get in and out of a trade when earnings were but a month away. Now I disallow trades with earnings announcements up to two months away.

Second, implied volatility is low. The S&P 500's volatility is in the 28th percentile of its most recent range, and I'm finding many low readings on individual symbols as well. I require I volatility, in the 60th percentile or greater, when I enter short spreads, Low volatility periods increase the number of trading signals disallowed.

From late last year I experimented with placing diagonal trades, which are net long, during periods of low volatility. I've not been pleased with the results and am phasing out what's left of such positions.

The next earnings season begins April 11, and that will give me many trading opportunities. And implied volatility might reverse to the upside, also giving more chances.

But for the meantime, the pickings are very, very slim.

-- Tim Bovee, Portland, Oregon, March 7, 2016

References

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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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.

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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.