Tim Bovee, Private Trader: CI Analysis

Friday, May 13, 2016

CI Analysis

The health-services company Cigna Corp. (CI), headquartered in Bloomfield, Connecticut with a portfolio of products ranging from medical and dental insurance to the tools and products needed to provide care of patients, closed below its 20-day price channel on Thursday, sending a bear signal. The stock has an historical tendency to whipsaw.

[CI in Wikipedia]

CI

I shall use the JUN series of options, which trades for the last time 35 days hence, on June 18.

Ranges

Implied volatility stands at 28%, which is double the VIX, a measure of volatility of the S&P 500 index. CI’s volatility stands in the 55th percentile of its most recent range. The price used for analysis was $127.05.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	138.19	148.33	N/A
Lower	115.91	104.77	N/A
Gain/loss	±$11.14	±$22.28	N/A

Implied volatility 1 and 2 standard deviations; central tendency earns move

Grit: The Power of Passion and Perseverance
by Angela Duckworth

The Trade

CI declined from June to August 2015 and then fell into a sideways pattern that has continued every since.

Brokerages have a somewhat pessimistic view of CI's prospects, in aggregate coming down with a negative 9% enthusiasm index; 45% of 11 analysts following the stock have issued strong-buy recommendations.

CI has given six bear signals over the past year. One was successful, yielding 2.2% over 54 days. The other five were failures, on average losing 5.4% over 26 days.

The low odds under my rules demands a direction-neutral strategy for CI.

Iron condor, short the $140 calls and long the $145 calls,
short the $115 puts and long the $110 puts,
sold for a credit and expiring June 19.
Probability of expiring out-of-the-money

JUN	Strike	OTM
Upper	140	83.5%
Lower	115	86.2%

The premium is $1.35, which is 27% of the width of the position’s wings. The stock at the time of order was priced at $127.05.

The risk/reward ratio is 2.7:1.

The zone of profit in the proposed trade covers a $12.50 move either way.

Decision for My Account

I placed an order for a position in CI as described above but was unable to obtain a fill. The stock options have overly wide bid/ask spreads, maing it impossible to fill at a price I'm willing to accept. No trade.

-- Tim Bovee, Portland, Oregon, May 13, 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.

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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 decisions for his or her own account, and take responsibility for the consequences.