The source of the trading idea was Aaron on Dough, who entered the position on Friday. The stock differs from my normal guildelines in that it has average volume below 3 million shares per day.
I shall use the JAN series of options, which trades for the last time 53 days hence, on Jan. 20.
Implied volatility stands at 11%, which is in the 60th percentile of its annual range. The price used for analysis was $102.93.
Aaron's trade was short the $107 calls and long the $100 puts, a $6 wide covered call with $2 wings. He earned a $0.69 credit.
The stock price has fallen slightly since Aaron's trade. I would structure it this way, sacrificing a dollar in width and skewing slightly toward the downside, the direction of the trend.
short the $100 puts and long the $98 puts,
sold for a credit and expiring Jan. 21.
Probability of expiring out-of-the-money
| JAN | Strike | OTM | Δ |
|---|---|---|---|
| Upper | 106 | 70.2% | 31 |
| Lower | 100 | 76.0% | 23 |
The premium is $0.70, which is 35% of the width of the position’s wings.
The risk/reward ratio is 1.9:1.
Decision for My Account
I've entered a position on FXE as described above. The stock at the time of entry was priced at $102.99.
-- Tim Bovee, Portland, Oregon, Nov. 28, 2016
by Jack D. Schwager |
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
All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Based on a work at www.timbovee.com.
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