Of 490 large-cap stocks and exchange-traded funds in my analytical universe, nine broke beyond their 20-day price channels, one to the upside and eight to the downside. None survived initial screening.
There are three prospects for trades coinciding with earnings announcements.
I shall do further analysis on Wednesday, May 4.
Earnings season began April 11. The higher pace of announcements will continue for about four weeks from that date, through Friday, May 6.
by Harry Domash
Potential trades keyed to events
The dates are those of the events, all of them earns announcements. Events prior to the opening bell are marked "am", during the trading day "mid", and after the closing bell "pm".
All three prospects have implied volatility below my minimum requirement of the 60th percentile of the most recent range. WFM is in the 59th percentile and might easily qualify for full and analysis and a possible trade after the opening bell. BABA and MRK have volatility so low that it is unoikely to meet my standards on Wednesday.
Note: I've made some changes in the methodology, which are marked in bold-face.
The stocks in my analytical universe all have analyst coverage through the stock-ranking company Zacks Investment Research. Not all of the exchange-traded funds are so covered.
I screen the symbols for historical odds of a profitable signal in the direction of the breakout for the past 12 months.
For symbols whose odds of success are in the top or bottom thirds, suggesting a directional or non-directional trade, respectively, I next screen for 1) suitability of the options grid, including open interest of three figures or greater on the strike prices I would need to use to build a position and [prior item 2 deleted and moved to next graf below.] 2) the absence of an earnings announcement within the lifespan of the like options series I would trade.
I defer until the day of a possible trade a final screen for implied volatility in the 60th percentile or greater of its most recent range.
-- Tim Bovee, Portland, Oregon, May 3, 2016
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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