[BBY in Wikipedia]
I shall use the SEP series of options, which trades for the last time 32 days hence, on Sept. 16.
Implied volatility stands at 41%, which is 3.4 times the VIX, a measure of volatility of the S&P 500 index. BBY’s volatility stands in the 45th percentile of its annual range. The price used for analysis was $34.55.
|Week||SD1 68.2%||SD2 95%||Earns|
by Baruch Lev and Feng Gu
BBY is in the 3rd wave up of a correction of the downtrend that began in March 17, 2015. It remains well above the 50-day moving average and is near the 61.8% Fibonacci retracement, a level that often -- but not always -- serves as a point of reversal or at least a stall.
Using Elliott wave analysis: If it is indeed a correction, then the 3rd wave might be the final leg up. However, if it is an impulse wave, then the 3rd would be the middle wave much more upside potential.
Given the directional ambiguities in the chart, I shall attempt a direction-neutral position.
short the $30.55 puts and long the $29.55 puts,
sold for a credit and expiring Sept. 17.
Probability of expiring out-of-the-money
The risk/reward ratio is 2.4:1.
The zone of profit in the proposed trade covers a $7 move either way.
Decision for My Account
I placed an order on BBY but was unable to get a fill at my asking price. I shall try again on Aug. 22, the day before earnings are announced.
-- Tim Bovee, Portland, Oregon, Aug. 15, 2016
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.License
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