Wednesday, August 10, 2016

Wednesday's Agenda

I have one prospect sitting on my desk today: An earnings play on BABA. It was a long shot because implied volatility was low at yesterday's close, and low it remains, in the 8th percentile of its annual range.

So BABA fails to qualify for further analysis, and I am left empty handed, without a prospect to my name.

I also looked to see if BABA will qualify for a small lots trade, but it is ranked neutral by Zacks Investment Research, and so fails to qualify for that strategy as well.

In last night's Prospects post I discussed the assignment risks of holding my position in SYF through its ex-dividend date, which is today. I decided to assume the risk, and that proved to be the right decision, as the markets opened with my options position still intact.

Why are things so slow?

I analyze thousands of symbols each day, and my sense is that three elements of the present market lie behind the lack a acceptable trades.

1. Low implied volatility. My options trading strategy is to sell contracts, and for that work best I need high implied volatility relative to its annual range. My standard is the 50th percentile or higher. Most symbols that I've analyzed are far below that level. This strategy is limited to the most liquid symbols, with average volume of three million shares a day and higher.

2. Neutral and downward trends. My small-lots strategy allows only bull plays, and those are becoming fewer and farther between. Most potential trades are eliminated because Zacks rates them as neutral or bearish, and my gut sense is that the bullish ratings are becoming harder to find.

3. Scarce signals. I rely on two signals: Price channel breakouts and MACD histogram crosses. Again, gut feeling, they seem to be scarcer than in times past.

The market today is biding its time. Traders are neither hopeful nor fearful but rather napping through a complacent shrugging Meh.

Happily, the nature of the markets is change. So this too shall pass.

By Tim Bovee, Portland, Oregon, Aug. 10, 2016

Elliott Wave Principle
by Robert Prechter


Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Small Lots: A new strategy discusses the thinking behind the analysis that identified these trades and can be read here. The symbols noted in this post are intended fortrading on a commission-free platform such as Robinhood Financial.

I can be reached via comments on Private Trader posts or by email at


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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 decision decisions for his or her own account, and take responsibility for the consequences.

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