Wednesday, April 20, 2016

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

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 →


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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