Friday, April 29, 2016

Monday's Prospects

On Friday, April 29:

Of 490 large-cap stocks and exchange-traded funds in my analytical universe, 20 broke beyond their 20-day price channels, six to the upside and 14 to the downside.

Three symbols with trading signals having low odds of success survived initial screening, one having broken out to the upside and two to the downside. Low-odds symbols are candidates for non-directional trades.

There are four prospects for trades coinciding with earnings announcements.

I shall do further analysis on Monday, May 2.

Earnings season began April 11. The higher pace of announcements will continue for about four weeks from that date.


The Rise and Fall of American Growth
by Robert J. Gordon

Friday's Outcomes

I exited two earnings plays: AMZN for a profit and INTC for a loss.

-- Tim Bovee, Portland, Oregon, April 29, 2016


Connectography: Mapping the Future of Global Civilization
by Parag Khanna

Thursday, April 28, 2016

Friday's Prospects

On Thursday, April 28:

Of 483 large-cap stocks and exchange-traded funds in my analytical universe, 22 broke beyond their 20-day price channels, four to the upside and 18 to the downside. One survived initial screening.

There are no prospects for trades coinciding with earnings announcements.

Lacking prospects, I shall do no further analysis on Friday, April 29.

Earnings season began April 11. The higher pace of announcements will continue for about four weeks from that date.


Capital in the 21st Century
by Thomas Picketty

Next week's earnings plays

Next week I'll be looking at 41 prospective earnings plays screened from 1,847 stocks that will be publishing results.

At first glance it seems likely that low implied volatility will reduce the number of viable prospects further.

Below are the symbols, sorted by action -- the day I shall do the final screening and analysis -- and then by the date and time of day of the announcement.


Trader Vic - Methods of a Wall Street Maser
by Victor Sperandeo


Thursday's Agenda

Of the seven prospects on my desk this morning, all of them potential earnings plays, only one has sufficiently high implied volatility to meet my criteria for full analysis, and it, as it turns out, is a curious case due to bad calendar information that made it onto the future earnings list upon which I rely.

The one qualifying is AMZN, and I shall discuss it below. But first, a list of all the prospects and their implied volatility as a percentile of their most recent range. My minimum requirement is the 60th percentile.

symrange %ile
AMZN66
CVX27
NWL22
RRC30
TRGP16
WDC39
XOM7

Now, to AMZN. It often happens on that earnings calendar's contain dates that are market estimates of the next earnings publication date date based on when the last earnings were announced. Normally, the company announces the actual date in plenty of time for it to appear on the calendar.

That didn't happen in the case of AMZN. Perhaps they were late to announce a date, or perhaps they announced one and then changed.

In any case, the calendar I use for figuring out my own trading agenda, an excellent piece of work by Yahoo Finance!, had AMZN publishing earnings on April 21. As turns out, the publication date is April 28.

I placed a trade based on the in correct information, and that trade is still part of my portfolio and have updated the AMZN Analysis post from a week ago with a discussion of the possible actions and a final decision: Do nothing.

-- Tim Bovee, Portland, Oregon, April 28, 2016


Trader Vic - Methods of a Wall Street Maser
by Victor Sperandeo

Wednesday, April 27, 2016

Thursday's Prospects

On Wednesday, April 27:

Of 483 large-cap stocks and exchange-traded funds in my analytical universe, four broke beyond their 20-day price channels, all to the upside. None survived initial screening.

There are seven prospects for trades coinciding with earnings announcements.

I shall do further analysis on Thursday, April 28.

Earnings season began April 11. The higher pace of announcements will continue for about four weeks from that date.


Options as a Strategic Investment
by Lawrence G. McMillan

Wednesday's Outcomes

FB's implied volatility moved above my 60th percentile minimum after the Federal Open Market Committee announcement and I entered a position.

I exited HOG for a loss; the price moved opposite the direction of my trade after earnings were announced.

-- Tim Bovee, Portland, Oregon, April 27, 2016


Options as a Strategic Investment
by Lawrence G. McMillan

FB Analysis

Update 6/7/2016: FB gapped up 7.2% immediately after earnings were published. It remained fluctuating on the upper boundary of the profit zone until a slight decline today, coupled with the helpful ravages of declining implied volatility and time decay, triggered an exit.

Profit reached 57% of ts maximum potential; my trigger level is 50%. Odds of expiring out of the money for maximum profit were 83.5% at entry. At exit the odds had declined to 60.9%.

FB shares rose by 9.8% over 41 days, or a +87% annual rate. The options position produced a 128.3% yield on debit for a +1,142% 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 JUN series of options, which trades for the last time 51 days hence, on June 18.

Ranges

Implied volatility stands at 42%, which is 2.9 times the VIX, a measure of volatility of the S&P 500 index. FB’s volatility stands in the 60th percentile of its most recent range. The price used for analysis was $107.25.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper123.50140.10110.77
Lower90.3273.72103.73
Gain/loss±$16.59±$33.19±$5.87
Implied volatility 1 and 2 standard deviations; central tendency earns move



Options as a Strategic Investment
by Lawrence G. McMillan

Wednesday's Agenda

None of the 13 prospects on my desk this morning has improved to the point where I can trade them, although one -- FB -- is coming close.

All are faltering on the level of implied volatility. My guidelines require that volatility be in the 60th percentile or higher of its most recent range.

FB is within six percentile of the goal. I shall keep an eye on the symbol's IV during the day and if it does hit 60, I'll do an analysis.

The others are so far away that I'm rejecting them now without a full analysis. Here are the 13 prospects and their current implied volatility percentiles.

symrange %ile
ABBV14
BMY5
CELG20
CME4
COP14
DOW20
FB54
MA27
MAR0
MO9
MPC20
TXN33
VIAB39


-- Tim Bovee, Portland, Oregon, April 27, 2016


Options as a Strategic Investment
by Lawrence G. McMillan

Tuesday, April 26, 2016

Wednesday's Prospects

On Tuesday, April 26:

Of 483 large-cap stocks and exchange-traded funds in my analytical universe, nine broke beyond their 20-day price channels, seven to the upside and two to the downside. None survived initial screening.

There are 13 prospects for trades coinciding with earnings announcements.

I shall do further analysis on Wednesday, April 27.

Earnings season began April 11. The higher pace of announcements will continue for about four weeks from that date.


Elliott Wave Principle
by Robert Prechter

Tuesday's Agenda

All 13 of the prospective earnings plays waiting a trading decision this morning have implied volatility that is too low to meet my guidelines.

I calculate volatility level relative to its most recent range, requiring that it be in the 60th percentile or greater to qualify for trading.

Here's the chart:

symrange %ile
AAPL33
ADT14
BA45
BEN16
BHI32
CMCSA5
EXC10
MDLZ13
SO36
T35
TMUS0
UTX21
WYNN37

None appear to be close enough to my minimum so as to have a reasonable chance of rising to that level during the trading day.

I shall do no further analysis today and plan to open no new positions.

-- Tim Bovee, Portland, Oregon, April 26, 2016


Elliott Wave Principle
by Robert Prechter

Monday, April 25, 2016

Tuesday's Prospects

On Monday, April 25:

Of 483 large-cap stocks and exchange-traded funds in my analytical universe, two broke beyond their 20-day price channels, one to the upside and one to the downside. Neither survived initial screening.

There are 13 prospects for trades coinciding with earnings announcements.

I shall do further analysis on Tuesday, April 26.

Earnings season began April 11. The higher pace of announcements will continue for about four weeks from that date.


Price Action Breakdown
by Laurentiu Damir

Monday's Agenda

Seven symbols are on my desk this morning as prospective trades coinciding with earnings announcements. I'm looking at too others that gave trading signals in Friday's trading. All nine wanting in some respect that disqualifies them from trading under my guidelines.

Two -- COH and RAI -- have implied volatility sufficiently high to support a trade, at the 60th percentile or higher of the most recent range.

However, those two and the other five potential earnings plays -- BAX, ESRX, LLY, NXPI and PG --all have open interest that is too small at key strike prices that I would use in building a trade.

The two that gave trading signals -- DISH and SCHW -- have extremely low implied volatility relative to their recent ranges and so are disqualified from trading. Their open interest, however, is ust fine.

So for today, everyone fails, and I am left without anything to analyze. I intend to open no new positions today.

-- Tim Bovee, Portland, Oregon, April 25, 2016


Price Action Breakdown
by Laurentiu Damir

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

I can be reached via comments on Private Trader posts or by email at datnillc@gmail.com.

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.

Sunday, April 24, 2016

The Week Ahead: GDP, FOMC, homes, durables, trade, income

The first Gross Domestic Product estimate for the 1st quarter will be published on Thursday at 8:30 a.m.

The Federal Open Market Committee meets for two days, ending on Wednesday with an announcement of monetary policy on Wednesday at 2 p.m.

Other reports with potential impact: New home sales on Monday at 10 a.m., durable goods orders on Tuesday at 8:30 a.m., international trade in goods on Wednesday at 8:30 a.m. and personal income and outlays on Friday 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 S&P 500 index, reported continually during market hours.

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

The index of consumer expectations from the University of Michigan consumer sentiment report, at 10 a.m. Friday.



A Complete Guide to Volume Price Analysis
by Anna Coulling

Saturday, April 23, 2016

How I Work: A Hunger Games for Traders

A trader, and reader of Private Trader, recently sent in an email asking how I work, not so much the rules or options strategy that I follow (posted here), but the nuts and bolts of my daily routine: What am looking for practically in making my decisions? What tools am I using to get to the decision point?

(A note: All times in this essay are New York time, except where noted; I live in Portland, Oregon, so I'm actually doing the work three hours earlier local time.)

My daily routine is a series of screens that potential trades must pass through before reaching the point where I'll consider doing a full analysis. Think of it as a series of challenges such as those served up to the contestants in the Hunger Games, and of the trader/analyst as the Gamemaker Seneca Crane.

Many stocks compete; few survive.

Step by step, in my role as gamemaker, here are the challenges that I send against the 500 or so stocks that I analyze each day.

Let the games begin, O Stocks, and may the odds be ever in your favor.

Actually, I'm running two games simultaneously, one based on trading signals, and the other based on earnings announcements.


A must read for traders:

Option Volatility and Pricing
by Sheldon Natenberg


1. For the trading signals game, my first step is to define the contestants among whom I shall search for the few Katniss Everdeens that I shall eventually consider for trades with a full analysis. I'm looking for liquid stocks trading on the U.S. markets and having options.

For this work, I turn to the Stock Screener on Zacks Investment Research (zacks.com), to which I subscribe. The query is as follows: Average volume is 1 million shares a day or greater, market capitalization is $10 billion or greater, which means that all are in the upper reaches of the Large Cap category.

I run the screen each week around 3 p.m. on Friday, and it will generally serve up around 450 or so stocks. To that I add a fixed list of liquid exchange-traded funds that will bring the total near to 500. The actual number of stocks fluctuates as market cap and average volume fluctuates for symbols on the margin.

I post the precise number of stocks analyzed at the start of the daily Prospects post and also as an item in my Week Ahead discussion of upcoming events, which is generally posted each Sunday

For the earnings announcements game, I use the list of earnings announcements published by Yahoo! at https://biz.yahoo.com/research/earncal/today.html, copying and pasting the information into a Google Sheets spreadsheet. I do this analysis once a week, generally on a  Thursday. Sometimes, during peak earnings season, the number of potential earnings announcements for a week exceed 1,000 stock symbols.

For either game, I call the potential trades my trading "universe".

2. For the trading signals game, the next step of screening relies on tech, in the form of a program called ptdata that I wrote, using the perl programming language. The program screens the symbols in my universe for breakouts beyond the 20-day price channel, using a variation on the Turtle Trading method.


Way of the Turtle
by Curtis Faith


The program runs each day from about 8:30 p.m. and compares the closing price for the day of the analysis to see if it is higher or lower than the highest or lowest closing price of the past 20 days. Those that meet the test in either direction are considered to have passed the screen and are written to a comma-delimited spreadsheet file that I can import into Google Sheets.

For symbol that give a trading signal, the program also calculates historical odds of a trading signal being successful, going back over the past 12 months of trading signals, as a way of flagging symbols that are prone to whipsaws, the absolute bane of any technical trader.

The number of symbols in each report varies wildly, depending upon what the markets do, running anywhere from none to 30 or 40, rarely more.

In truth, there's nothing magic about price channels and Turtle Trading. Any signaling system will do, as long as it gives unambiguous signals that can be calculated programmatically. Moving average breakouts would be another possible signal to use; a price close above the moving average is a bull signal, and below, a bear signal.

An example of a method that won't work well is Bollinger Bands, which are much nuanced in its signaling and usually requires the human excellence in pattern recognition to work.

The program uses a database of daily prices for all U.S. stocks -- open, high, low, close, volume -- which I update daily using EODData LLC (eoddata.com) as my source.

The ptdata program runs on a small Ubuntu Linux server built by an Israeli company: A Utilite Pro from CompuLab, based in Haifa, running an ARM Cortex-A9 chip. That means very low power consumptions, so I can keep it up and running 24-7 for very little cost.

Servers, of course, all have names. Mine is named Buffy, in honor of Joss Whedon's iconic character, Buffy the Vampire Slayer

For the earnings announcement game, I take the Google Sheets spreadsheet and perform a series of manual screens.

First, I eliminate the foreign announcements (Yahoo! is quite comprehensive) by screening out all stock symbols that have a period in them.

Next I screen for price ($30 or greater) and volume (Usually 1 million shares a day or more; sometimes higher if the number of prospects is greater than I can reasonably handle.)

I then normalize Yahoo!'s text tables describing the time of day of an earnings announcement into three categories: am, pm, mm (for the middle of the trading day) and xm (for time-of-day unknown).

The final step is to assign an action date: The day of the announcement when it is scheduled for after the closing bell, and the day before the announcement when it is happening before the opening bell.

3. Now the real work begins, a series of manual screens. I do them by hand because I have no easy (read inexpensive) way to bring the data into a my server.

For the trading signal game, I eliminate all signals that are within six weeks of earnings announcements, or that were given in the first trading session during an announcement. This step eliminates almost all symbols when peak earnings season looms.


Technical Analysis Explained
by Martin Pring

I sort the signal out by bull and bear, and within each by those having high odds of success and low odds of success. Those with high odds as candidate for vertical option spreads, which are directional. Those with low odds, having a tendency to whipsaw, are candidates for non-directional trades, such a iron condors.

I report those who survived the screening in the daily Prospects post, which is published genrally after 10:30 p.m.

For both games, and for my own information, I determine implied volatility (IV) relative to its history, sometimes where it stands within the most recent range, or swing, and if that proves onerous due to the number of signals, where it stands relative to the 12-month range, which I can get directly from the ThinkOrSwim platform run by my brokerage.

The relative level of implied volatility is expressed as a percentile of the range. For the recent range, I require the IV be in the 60th percentile for greater; for the 12-month range, in the 50th percentile or greater.

I select the expiration month for the options that I use in the trade: Those expiring between 30 days and 42 days (four to six weeks) of the trading date, whichever options series expires soonest.

I also note the open interest, a measure of liquidity, on options filling the the key positions in building a trade. I want open interest to be 100 contracts or greater on call and put options at strikes having an 89% or lower chance of expiring out of the money for maximum profit.

I get the IV, open interest and chance information from the ThinkOrSwim platform. I don't use either one for screening at this point, but only to get a preliminary idea of how viable the trades might be.

At this point I gather some data to help engage my pattern recognition sense, the excellent toolkit that resides in the brains of every human and that is, in my opinion, the most useful arrow the private trader's quiver.

I take a look at the stock chart to identify historical trends, and,  identify what brokerages and their analysts assessments are. I have have no hard and fast rules for using this data, but it just gives me a sense of whether I like the trade or not. What does my gut tell me?

In addition to looking at trends, I'll often use Elliott Wave analysis as a means of better understanding where a stock stands in its cycle.


Elliott Wave Principle
by Robert Prechter

4. Implied volatility and open interest can be rapidly changing. The final screening for both games happens on the day of the trade.

I do a final calculation of implied volatility percentile and of open interest. I reject without a full analysis prospects that fail either test, reporting that decision in my daily Agenda post, which generally is published on Private Trader about 10:30 a.m.

Those fortunate survivors of the Hunger Games go to full analysis.

I won't go into the full analysis process here, which is entirely transparent. Each is headlined with the symbol and "Analysis" (as in "AAPL Analysis", and includes a decision on whether to trade or not.

I also do a summary of the day's trades, and rejections, in the daily Outcomes post, which generally is published between 3:15 p.m.and 4 p.m.

5. And after that, about 1 p.m. my local time, the games are over and the day is mine. I walk three miles, ending up at my favorite coffee house where I hang with friends and discuss every topic under the sun.

But there's still prep to do for the next day. Ptdata, running on Server Buffy, sends me an email around 5:30 p.m. my local time saying that the initial screening is done, and I swing into step 3, preparing the Prospects report.

In truth, the markets are a never ending cycle, and so must be the days in a private trader's life.

-- Tim Bovee, Portland, Oregon, May 23, 2016


The Bible of Options Strategies
by Guy Cohen


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

I can be reached via comments on Private Trader posts or by email at datnillc@gmail.com.

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.

Friday, April 22, 2016

Monday's Prospects

On Friday, April 22:

Of 483 large-cap stocks and exchange-traded funds in my analytical universe, 14 broke beyond their 20-day price channels, eight to the upside and six to the downside.

One symbol giving a trading signal with high odds of success survived initial screening, as did one with l;ow odds. Both broke out to the upside.

There are seven prospects for trades coinciding with earnings announcements.

I shall do further analysis on Monday, April 25.

Earnings season began April 11. The higher pace of announcements will continue for about four weeks from that date.


The Ascent of Money
by Niall Ferguson

Friday's Agenda

All of the three prospects on my desk this morning continue to have extremely low implied volatility this morning, so far below my minimum requirement -- volatility at or above the 60th percentile of its most recent range -- that it's not even worth checking during the trading day.

Tradability is out of reach.

A chart of the prospects showing the implied volatility percentile both for the most recent range and fo the past 12 months.

symrange %ileyear %ile
HAL120
PAYX2431
WBA1212

I plan no analysis today and won't open new trades.


-- Tim Bovee, Portland, Oregon, May 22, 2016


The Ascent of Money
by Niall Ferguson

Thursday, April 21, 2016

Friday's Prospects

On Thursday, April 21:

Of 480 large-cap stocks and exchange-traded funds in my analytical universe, 36 broke beyond their 20-day price channels, four to the upside and 32 to the downside.

One symbol giving a trading signal with high odds of success survived initial screening, as did one having low odds of success. Each broke out to the downside.

There is one prospect for a trade coinciding with an earnings announcements.

I shall do further analysis on Friday, April 22.

Earnings season began April 11. The higher pace of announcements will continue for about four or five weeks from that date.

A book from my library →

Thursday's Outcomes

I opened positions on AMZN and MCD as earnings plays.

After trading AMZN, I learned that I had relied on outdated information as to the earnings publication date, which will be April 28 after the closing bell. I intend to hold my position on AMZN and shall reassess it on the earnings publication date, with the intent of rolling it forward to a new position if necessary for the health of the trade.

I rejected trades on MSFT, CAT, PNC and MS because of low implied volatility.

-- Tim Bovee, Portland, Oregon, May 21, 2016

A book from my library →


Next week's earnings plays

Next week I'll be looking at 41 prospective earnings plays screened from 1,267 symbols that will be publishing results.

I raised the required average volume from 1 million shares a day to 3 million in order to bring the number of symbols down to a more manageable level. At first glance it seems likely that low implied volatility will drop the number of viable prospects even further.

Below are the symbols, sorted by action -- the day I shall do the final screening and analysis -- and then by symbol within the action day.


A book from my library →

MCD Analysis

5/9/2016: MCD engaged in a slow rise after earnings were published and today passed my exit point. I got out with 55% of the potential profit.

Shars rose by 2.6% over 17 days, or a +55% annual rate. The options position produced a 122.4% yield on debit for a +2,628% annual rate.

The fast-food chain McDonald's Corp. (MCD), headquartered in Oak Brook, Illinois, publishes earnings on Friday before the opening bell.

[MCD in Wikipedia]

MSFT

I shall use the JUN series of options, which trades for the last time 57 days hence, on June 18.

Ranges

Implied volatility stands at 21%, which is 1.5 times the VIX, a measure of volatility of the S&P 500 index. MSFT’s volatility stands in the 62nd percentile of its most recent range. The price used for analysis was $127.66.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper138.15148.64129.55
Lower117.17106.68125.78
Gain/loss±$10.49±$20.98±$3.15
Implied volatility 1 and 2 standard deviations; central tendency earns move

A book from my library →

AMZN Analysis

Update 4/29/2016: My do-nothing decision paid off as AMZN gapped sharply to the upside after earnings were published, quickly reaching half of potential profit. In line with my guidelines, I exited, preserving my profits.

Shares rose by 4.1% over eight days, or a +188% annual rate. The options position produced a 99.4% yield on debit for a +4,356% annual rate.

Update 4/28/2016; The actual AMZN earnings announcement has arrived. AMZN publishes earnings on Thursday, April 28, after the closing bell. My position of a week ago is still on the books. Where does it stand and what is to be done?

Tye share price as of this writing is $622.13, or $12.13 into the profit zone, although the position is presently loss-making because the volatility hasn't fallen and time decay hasn't done its work to make this short position profitable.

If AMZN closes above $610, at expiration in mid-June, then the position will be maximally profitable.

My options are 1) keep the present position as is, 2) add a bear call spread, turning the full position into an iron condor, 3) add a further out of the money bull put spread, or 4) add a full iron condor. All of the new positions would be the JUN series, same as the original position.

Given the present options grid, I would structure the bear call spread in  #2 and the call half of #4 as short the $685 call and long the $695 call, with an 81.7% chance of expiring out of the money.

I would structure the additional bull put spread in #3 and the put half of #4 as short the $530 put and long the $540 put with an 84.5% chance of expiring out of the money.

The action in #2 and #4 add about $7 of downside protection to the profit zone., not a lot for a stock as high priced as AMZN.  The action in #3 and #4 put a limit on my upside profit at $690, compared to an unlimited upside profit zone in my present position.

Given the fact that AMZN has risen after three of the last four earnings announcements, and the reality that brokerage analysts remain highly enthusiastic about the company's prospects, I judge that protecting the unlimited upside profit is of greater value than adding a pittance to the downside zone of profit.

The share price dropped $33 over the past week -- about 5% -- a slightly bearish move. However, it broke through no support levels and today rose by $20, cutting the net decline from my entry point to only 2%. 

History, analysts and chart all argue for action #1 -- keep the present trade and do nothing -- and that is indeed what I shall do. 

The online retailer Amazon.com (AMZN), headquartered in Seattle, Washington publishes earnings April 28 after the closing  bell. (I discovered after doing the trade described below that I was relying on outdated information for the earnings date. I thought it was Thursday, April 21; it's actually a week later. In any case, no harm done.)

[AMZN in Wikipedia]

AMZN

I shall use the JUN series of options, which trades for the last time 57 days hence, on June 18.

Ranges

Implied volatility stands at 42%, which is triple the VIX, a measure of volatility of the S&P 500 index. AMZN’s volatility stands in the 66th percentile of its most recent range. The price used for analysis was 633.79.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Upper739.03844.28681.59
Lower528.55423.30586
Gain/loss±$105.24±$210.49±$47.80
Implied volatility 1 and 2 standard deviations; central tendency earns move

A book from my library →

Thursday's Agenda

I have a rich harvest of prospective trades today, four coinciding with earnings announcements and two as a result of trading signals. As has so commonly been the case of late, all but one has failed final screening because of low implied volatility.

Among the potential earnings plays, AMZN alone has volatility above the 60th percentile of its most recent range. It has the added benefit of also being above the 60th for its annual range, an important reinforcement. MSFT, CAT and MCD are below the 60th and so fail to make the grade.

The two trading signal prospects, MS and PNC, each has extremely low volatility and no serious chance of rising sufficiently during the day.

I shall post a full analysis of AMZN this morning.

I'll keep a watch on MSFT, CAT and MCD during the day and if any redeem themselves through rising volatility then I shall post full analyses.

MS and PNC are irredeemably low in volatility and I shall not give them another thought.

A chart of the symbols and their implied volaitlity:

symrange %ileyear %ile
AMZN6667
MSFT5438
CAT3951
MCD5025
MS423
PNC1015

-- Tim Bovee, Portland, Oregon, May 21, 2016

A book from my library →


Wednesday, April 20, 2016

Thursday's Prospects

On Wednesday, April 20:

Of 480 large-cap stocks and exchange-traded funds in my analytical universe, 24 broke beyond their 20-day price channels, 12 in either direction.

One symbol giving a trading signal with high odds of success survived initial screening, as did one with low odds of success. Both broke out to the upside. High-odds symbols are candidates for directional trades, and low odds, for non-directional trades.

There are four prospects for trades coinciding with earnings announcements.

I shall do further analysis on Thursday, April 21.

Earnings season began April 11. The higher pace of announcements will continue for about four weeks from that date.

A book from my library →

Wednesday's Outcomes

I exited IBM for a loss.

Five prospects failed final screening and I rejected them without full analysis: MAT, QCOM, YUM UAL and MON. See today's Agenda post for a discussion.

-- Tim Bovee, Portland, Oregon, May 20, 2016

A book from my library →

Wednesday's Agenda

None of the five prospective trades on my desk this morning has passed final screening. All crashed upon the rocks of low implied volatility.

Four were earnings plays: MAT, QCOM, YUM and UAL.

In addition, there was a bull signal on MON that triggered the screening process.

I judge implied volatility in relation to the most recent range. Implied volatility tends to move in an endless sideways trend -- "reverts to the mean" in the jargon -- and I'm treating the extremes at either side of that reversion as the range that defines volatility as high or low.

At minimum I want volatility to be in the 60th percentile of that range. In addition, I also look at where volatility stands in relation to its high and low for the past 12 months -- some call it the volatility index -- to get a sense where the present range stands in the broader sweep of market history.

Here are the five symbols and their volatility percentiles for the present range and for the past year.

symrange %ileyear %ile
MAT155
QCOM3934
YUM3446
UAL104
MON4858

The ideal trade will have the year percentile at the 50th or above, and the range percentile at the 60th of higher. MON meets the less important year percentile test but not the range test that I use for my decision.

If the numbers for any of the five improve during the day then I'll swing into an analysis. Otherwise, I plan no new analyses or positions today.

-- Tim Bovee, Portland, Oregon, May 20, 2016

A book from my library →