Monday, September 12, 2016

VMW Analysis

The cloud computing and other data infrastructure company VMware Inc. (VMW), headquartered in Palo Alto, California, has implied volatility in the upper half of its one-year range and so qualifies for a full analysis.

[VMW in Wikipedia]


I shall use the OCT series of options, which trades for the last time 39 days hence, on Oct. 21.


Implied volatility stands at 44%, which is 2.6 times the VIX, a measure of volatility of the S&P 500 index. VMW’s volatility stands in the 61st percentile of its annual range. The price used for analysis was $73.63.

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

VMW is at the lower end of a wide range and has a bullish rating from Zacks Investment Research.

Given the uncertainty over the timing of a future rise in the present market, I shall go for a direction neutral strategy, an iron condor.

Iron condor, short the $80 calls and long the $82.50 calls,
short the $65 puts and long the $62.50 puts,
sold for a credit and expiring Oct. 22.
Probability of expiring out-of-the-money


The premium is $0.57, which is 23% of the width of the position’s wings. The stock at the time of analysis was priced at $73.59.

The risk/reward ratio is 3.4:1.

The zone of profit in the proposed trade covers a $7.50 move either way.

Decision for My Account

The risk/reward ratio produces insufficient profit. I'm passing on the trade.

-- Tim Bovee, Portland, Oregon, Oct. 12, 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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