The Week Ahead: Fedsters, GDP, durables, trade

frb1917
Federal Reserve Board (1917)

The Federal Open Market Committee, the money policy arm of the Federal Reserve, completes a two-day meeting on Wednesday, releasing a policy statement and member forecasts at 2 p.m. New York time. Fed Chairman Jerome Powell holds a news conference at 2:30 p.m.

The FOMC is seeking a course between Scylla and Charybdis, between increasing interest rates at a higher pace in the face of tight job markets and the consequent expectation of rising wages and prices, and keeping the pace slow or even lowering it, and a yield curve that is increasingly being seen  as a harbinger of economic downturn. Reuters on Friday published a report outlining the dilemma regulators face.

Since December 2015 the FOMC has raised its target for the federal funds rate seven times, 25 basis points at a time, to the present range of 1.75% to 2%. This year’s two increases have come down to one per quarter.

An increase of more than 25 basis points would be a market-rocking signal, as would any indication that regulators intend more than one increasing after September. That’s assuming, of course, that the conventional wisdom is correct and Wednesday’s announcement raises rates.

As the last month of the quarter nears its end, the third iteration of the gross domestic product hits the markets, on Thursday at 8:30 a.m. New York time. It will impact the markets if there’s a significant change from the second revision published last month. It’s not likely, so the report will probably be more of a confirmation than new news.

The news will come from a a series of more tightly focused reports: Durable goods orders and international trade in goods, each on Thursday, and personal income and outlays, on Friday, all at 8:30 a.m.

We’ll also get a look at housing in my favorite report for the sector, the Case-Shiller home price index on Tuesday at 9 a.m. It provides prices for 20 metro areas, as a well as a national summary, providing a useful degree of detail in assessing real estate markets. Two other housing sector reports will be published: New home sales on Wednesday and the pending home sales index on Thursday, each at 10 a.m.

Fed Chair Powell will deliver brief remarks on the U.S. economy at Rhode Island Business Leaders Day sponsored by Sen. Jack Reed, D-R.I., on Thursday at 4:30 p.m. in Washington.

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Live: Friday, Sept. 21, 2018

3:40 p.m. New York time

That’s a wrap for the week. The next options holding to expire is AMD, on Oct. 5. It stands at 28% of maximum potential profit.

I’ll post my discussion of economic reporting, The Week Ahead, on Saturday.

11:05 a.m. New York time

I’ve updated AAPL with results.

10:25 a.m. New York time

Well, that was fast. AAPL dropped below my $219.15 trigger, and I have exited for $3.92 per share, a very slight loss. I shall update the analysis with results shortly.

10:20 a.m. New York time

My options on AAPL expire on Friday a week from today. The position is slightly profitable. Very near term support is at $219.15. If the price falls below that level, then I exit immediately. If it stays above, then I shall exit on Monday.

Here is where my options positions stand this morning:

sym option debit share price curr % max profit net profit/share $ option days left
AAPL 3.66 219.75 5.9 0.23 7
AMD 0.81 31.74 17.3 0.17 14
EWZ 0.79 33.39 8.1 0.07 56
GNRC 0.90 58.12 25.6 0.31 28
MU 1.10 44.47 (8.9) (0.09) 28
SPY 4.05 293.02 (31.9) (0.98) 56

And my shares positions:

sym share price net result % net profit $ days held
AAPL 219.75 -1.9% (4.21) 7
CHK 4.45 11.3% 0.45 7
FXI 43.40 5.3% 2.19 7
SPXU 31.61 -22.1% (8.95) 129
VNQI 57.56 1.3% 0.75 8

By Tim Bovee, Portland, Oregon, Sept. 21, 2018

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MU Analysis

Micron Technology Inc. (MU)

I have entered a short iron condor non-directional spread on MU, using options that trade for the last time 29 days hence, on Oct. 19. The premium is a $1.01 credit and the stock at the time of entry was priced at $46.31.

I made the decision to enter the trade in my account based on high implied volatility just prior to an earnings announcement. MU publishes earnings on Sept. 20 after the closing bell.

The profit zone for this position is between $58.51 on the upside and $42.01 on the downside.

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Live: Thursday, Sept. 20, 2018

11:45 a.m. New York time

I’ve entered an options play on MU, structured as non-directional short iron condor.

10 a.m. New York time

I shall analyze MU as an earnings play; the company publishes results after the closing bell today.

Here’s the present status of my options positions …

sym option debit share price curr % max profit net profit/share $
AAPL 3.07 221.31 21.1 0.82
AMD 0.84 31.62 14.3 0.14
EWZ 0.82 32.78 4.7 0.04
GNRC 0.95 57.58 21.5 0.26
SPY 3.55 292.81 (15.6) (0.48)

… and my shares positions …

sym share price net result % net profit $
AAPL 221.31 -1.2% (2.65)
CHK 4.42 10.5% 0.42
FXI 42.62 3.4% 1.41
SPXU 32.11 -20.8% (8.45)
VNQI 57.42 1.1% 0.61

By Tim Bovee, Portland, Oregon, Sept. 20, 2018

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Live: Wednesday, Sept. 19, 2018

10:40 a.m. New York time

I have no new trades in sight today. The problem child among my holdings is AAPL, which has fallen below the lower break-even point on my short iron condor. The position expires in nine days, so the question is, will it reverse in time to ease the loss?

This AAPL chart covers five days with five-minute bars. The Elliott wave count is looking solely at the form. The level may be Subminuette {-1}, but I’m ignoring it for my purposes today.

aapl20180919

The chart shows AAPL is well within the 5th degree, which means that the decline is on its last leg. The whole movement has last only five calendar days and in its third trading day, so a reversal by the end of the week is certainly not improbable. My normal practice would be to exit AAPL on Monday, Sept. 24.

I’m keeping in mind that the present loss per share on the contracts is $1.72, and my maximum risk is $6.10. The chart shows a small reversal up from today’s low of $215.30. A drop below that level will prompt me to close the position immediately.

Here’s the present state of my options holdings:

sym option debit share price curr % max profit options days left
AAPL 5.62 215.37 (44.5) 9
AMD 0.86 30.56 12.2 16
EWZ 0.86 32.45 0.0 58
GNRC 1.00 58.53 17.4 30
SPY 3.01 290.90 2.0 58

… and my shares holdings:

sym share price net result %
AAPL 215.37 -3.8%
CHK 4.24 6.0%
FXI 42.53 3.2%
SPXU 32.71 -19.4%
VNQI 57.29 0.8%

By Tim Bovee, Portland, Oregon, Sept. 19, 2018

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EWZ Analysis

iShares MSCI Brazil Capped ETF (EWZ)

I have entered a very wide short iron condor spread on EWZ, using options that trade for the last time 59 days hence, on June 15. The premium is a $0.86 credit and the stock at the time of entry was priced at $32.70.

This is a high implied volatility play relying upon a political event: The general election in Brazil on Oct. 7 amid recovery from a recession and corruption scandals involving some politicians. All in all, it’s an uncertain situation, just the sort of thing to push implied volatility to extremely high levels.

Once the election is over, I anticipate a sharp decline in implied volatility, to the benefit of my position.

The extreme width of the spread reduces the premium. In this case, I’m relying on a steep fall in implied volatility from a high level to provide a bump to the profit. The position will require active management.

The trading idea is not mine but rather came from analysts at TastyTrade.

The profit zone for this position is between $40.86 on the upside and $24.86 on the downside.

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SPY Analysis

SPDR S&P 500 ETF (SPY)

I have entered a short vertical spread on SPY, using options that trade for the last time 59 days hence, on Nov 16. The premium is a $3.07 credit and the stock at the time of entry was priced at $291.11. The breakeven point is $288.93, with all prices at and below that point profitable at expiration.

I made the decision to enter the trade in my account based on Elliott wave analysis suggesting that the 3rd wave down at Minuette degree has begun..

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Live: Tuesday, Sept. 18, 2018

1:20 p.m. New York time

I have entered a short iron condor position on EWZ. This completes my planned trades for the day.

12:50 p.m. New York time

I have entered a short bearish vertical spread on SPY.

12:10 p.m. New York time

Here’s how my holdings stand as of the middle of the trading day.

Options positions:

sym option debit share price curr % max profit options days left
AAPL 3.94 219.52 (1.3) 10
AMD 0.95 31.76 3.1 17
GNRC 1.00 58.37 17.4 31

Shares positions:

sym share price net result %
AAPL 219.52 -2.0%
CHK 4.14 3.4%
FXI 41.81 1.5%
SPXU 32.63 -19.6%
VNQI 57.24 0.8%

11:45 a.m. New York time

I’ve updated my ORCL analysis with results.  AAPL

11:20 a.m. New York time

I have two new positions in mind for today. First, I think it’s time to re-enter a short bear call spread on SPY. The evidence points to the the 3rd wave down at the Minuette degree having begun.

Here’s a chart of SPY for the last 15 days with 20-minute bars.

spy20180918

Also, I shall be taking a look at a trading idea that is not my own. It a non-directional play on EWZ, which tracks the Brazilian markets. The source of the idea is today’s Dr. Data mailing from TastyTrade.

10:55 a.m. New York time

I have exited my short iron fly options position on ORCL for a profit. Details to come.

By Tim Bovee, Portland, Oregon, Sept. 18, 2018

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ORCL Analysis

Oracle Corp. (ORCL)

Update 9/18/2018: ORCL dropped sharply after earnings were published and then quickly recovered most of the temporary loss. I exited at 36.5% of maximum potential profit. Shares were at $48.65, and the debit on my options was $1.90, producing a profit of $109 per contract.

Shares declined by 1.3% over my one-day holding period, or a -489% annual rate. The options position produced a +57.4% return for a +20,939% annual rate.


I have entered a short iron fly spread on ORCL, using options that trade for the last time 32 days hence, on Oct. 19. The premium is a $2.99 credit and the stock at the time of entry was priced at $49.31.

I made the decision to enter the trade in my account based on an earnings announcement.

The profit zone for this position is between $51.99 on the upside and $45.99 on the downside.

ORCL publishes earnings on Sept. 19 after the opening bell.

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Live: Monday, Sept. 17, 2018

12:50 p.m. New York time

I have entered a short iron fly options position on ORCL.

11:05 a.m. New York time

ORCL publishes earnings after the closing bell, and I shall analyze it as a potential earnings play. Given the nature of the broader markets, I’m leaning at this point toward a non-directional iron fly strategy.

SPY and the S&P 500 are trading within the prior day’s range

Here’s the present state of my options holdings:

sym option debit share price curr % max profit options days left
AAPL 4.05 220.00 (4.1) 11
AMD 1.03 31.99 (5.1) 18
GNRC 1.10 57.61 9.1 32

… and my shares holdings:

sym share price net result %
AAPL 220.00 -1.8%
CHK 4.04 1.0%
FXI 41.66 1.1%
SPXU 32.99 -18.7%
VNQI 56.85 0.1%

By Tim Bovee, Portland, Oregon, Sept. 17, 2018

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