Thursday, August 11, 2016

TEVA Analysis

Update 8/25/2016: An investment fund lessened its stake in TEVA, prompting a one-day decline at high volume that brought my position in to profitable territory. I exited at 65% of potential profit.

During the lifetime of the position, shares lost 2.1% over 14 days, or a -54% annual rate. The options position produced a 181.8% yield on debit for a +4,740% annual rate.

The pharmaceutical company Teva Pharmaceutical Industries Ltd. (TEVA), headquartered in Petah Tikva, Israel, closed on Wednesday with sufficiently high implied volatility to warrant further analysis.

[TEVA in Wikipedia]


I shall use the SEP series of options, which trades for the last time 36 days hence, on Sept. 16.


Implied volatility stands at 42%, which is 3.6 times the VIX, a measure of volatility of the S&P 500 index. TEVA’s volatility stands in the 54th percentile of its annual range. The price used for analysis was $52.95.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; central tendency earns move

The Trade

TEVA peaked on July 28, 2015 and began an unrelenting slow decline. Using Elliott wave analysis, I read it as being the first wave of a downward correction. More formally, my count is a 5th wave down from Aug. 3 within an A wave of higher degree from July 2015.

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As is almost always the case with Elliott, there is sufficient ambiguity to cast doubt on the shorter-term direction.

The short-term MACD histogram is declining, and the price yesterday crossed below the longer-term 50-day moving , buttressing the argument for a downward move, although it moved back above the MA today.

The slope of the decline isn't steep, so I'm going to accommodate the ambiguity with a sideways play, skewed somewhat to the downside to also accommodate the longer-term downward trend..

Iron condor, short the $57.50 calls and long the $60 calls,
short the $45 puts and long the $42.50 puts,
sold for a credit and expiring Sept. 17.
Probability of expiring out-of-the-money


The premium is $0.63, which is 25% of the width of the position’s wings. The stock at the time of entry was priced at $53.00.

The risk/reward ratio is 3:1.

The zone of profit in the proposed trade covers a $6.25 move either way.

Decision for My Account

I have entered a position on TEVA as described above. My exit point for a profit is a premium of $0.31, and for a loss, of $1.26.

-- Tim Bovee, Portland, Oregon, Aug. 11, 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.

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