SYF Analysis

The consumer financial services company Synchrony Financial (SYF), headquartered in Stamford, Connecticut, closed Friday 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 46 days hence, on Sept. 16.

Ranges

Implied volatility stands at 28%, which is 2.4 times the VIX, a measure of volatility of the S&P 500 index. SYF ’s volatility stands in the 51st percentile of its annual range. The price used for analysis was $28.26.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	30.89	33.52	N/A
Lower	25.63	23.00	N/A
Gain/loss	±$2.63	±$5.26

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

Option Volatility and Pricing by Sheldon Natenberg

The Trade

SYF has been trending downward since July 2015, It bounced up from a low on June 27, recovered about half of its most recent decline and is now engaged in a multi-day sideways trend that may or may not be a precursor to further decline

The MACD histogram has been declining since July 15 but remains above the zero-line, meaning it has not yet given a crossover signal.

With the chart and the MACD sending different signals, I shall attempt a direction-neutral position.

Iron condor, short the $30 calls and long the $31 calls,
short the $25 puts and long the $24 puts,
sold for a credit and expiring Sept. 17.
Probability of expiring out-of-the-money

AUG	Strike	OTM
Upper	30	70.4%
Lower	25	83.0%

The premium is $0.15, which is 15% of the width of the position’s wings. The stock at the time of analysis was priced at $28.18.

The risk/reward ratio is 5.7:1.

At this point I'm cutting the analysis short and going straight to decision.

Decision for My Account

The risk of the trade is far higher than I like, and given the nature of the grid and the ambiguous downward bias of the chart, I see no other way to build the trade.

I'm passing on SYF. No trade.

-- Tim Bovee, Portland, Oregon, Aug. 1, 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.