SYF Analysis

The consumer financial services company Synchrony Financial (SYF), headquartered in Stamford, Connecticut, closed Tuesday with implied volatility sufficiently high and continues to meet my standard requiring volatility at the 50th percentile of its annual range or higher.

[SYF in Wikipedia]

SYF

I shall use the SEP series of options, which trades for the last time 51 days hence, on Sept. 16.

Ranges

Implied volatility stands at 29%, which is 2.2 times the VIX, a measure of volatility of the S&P 500 index. SYF’s volatility stands in the 53rd percentile of its annual range. The price used for analysis was $28.11.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	30.76	33.42	N/A
Lower	25.46	22.80	N/A
Gain/loss	±$2.65	±$5.31

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

The Long Depression: Marxism and the Global Crisis in Capitalism by Michael Roberts

The Trade

SYF has been in a downtrend since July 21, 2015 and is at present rolling over for a lower high on the way down. The peak of the present leg down, which is only beginning, came on July 22. Given the chart, and also a bearish rating from Zacks Investment Research, I shall structure the position as a bear call spread.

Bear call spread, short the $29 calls and long the $30 calls,
sold for a credit and expiring Sept. 17.
Probability of expiring out-of-the-money

AUG	Strike	OTM
	29	66.8%

The premium is $0.25, which is 25% of the width of the position’s wings. The price at time of analysis was $28.07

The risk/reward ratio is 3:1.

The zone of profit gives a $0.93 cushion above the present price.

Decision for My Account

On a hypothetical $500 trade, the risk/reward ratio, at 3:1, although within my guidelines, produces only $175 profit, which is a $87.50 at my exit trigger of 50% of maximum potential profit. My preference is for at leas a $100 profit on the hypothetical account size.

What that translates to in plain English is that the trade has outsized risk for a vertical spread. Even increasing the width of the trade to $2 gives only a $180 maximum profit, and that at the price of increase the risk by about 20%.

Bad idea. I'm passing on SYF. No trade.

-- Tim Bovee, Portland, Oregon, July 27, 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.

License



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Based on a work at www.timbovee.com.