Live: Wednesday, Sept. 5, 2018

1:30 p.m. New York time

I’ve entered a position on AAPL.

1 p.m. New York time

To the final four I added NFLX, and I then recalculated the IV rank to get a more current figure than that provided in the TastyTrade report from which I chose prospects.

That recalculation made LULU less attractive by lowering the IV rank to 29. Also, earnings produced an upside gap, and I’m not yet certain whether the price has stabilized. So I’ve passed on LULU.

I also declined further consideration of AMZN because of the high price of shares. A $2,000+ price tag would require me to commit an overly large proportion of my trading funds to a single symbol. My rule is, echoing Tom Sosnoff, is: Trade small, trade often.

NFLX is fine with a price that meets my standards and a decent IV rank of 58. But the price is undergoing a marked directional move downward, so I’m passing for now.

That leaves AAPL, with an IV rank of 57 and CRM, with an IV rank of 37. AAPL first, and if passes muster for a trade, then in the interest of time diversification,  I’ll defer further consideration of CRM until a later day.

11:05 a.m. New York time

For the Final Four — LULU, CRM, AMZN and AAPL — here’s how I’ll be thinking through the trading decision.

Each trade will be structured as an iron condor, meaning that there will be a zone of profit surrounding the current price, and a move too far up or down will move the position into the loss column.

I favor higher implied volatility relative to its history because that allows me to use a wider zone of profit. It’s possible to skew an iron condor to favor one direction or the other. For this first batch, I intend to build the trade without skewing.

The other factor is the expiration date. Generally, the further out the expiration, the higher the premium and therefore the wider the zone of profit. But time itself is a risk factor. The quicker I can exit a trade profitably, the less my potential risk, and the longer I linger in a position, the greater my risk. Given the uncertainties uncovered by my Elliott wave analysis of SPY, I shall aim for shorter-term trades as close to 30 days out as I can get. In order to attain that goal I will consider weekly option issues. They tend to have wider bid/ask spreads than do the monthlies, reducing profit, but I consider time to be a greater risk.

That’s it. Time to get to work.

10:35 a.m. New York time

I’ve eliminated one of the prospective odds trades because of an approaching earnings announcement: ORCL on Sept. 13.

And I’ve struck five because they are moving down, and I’m looking for rising or sideways stocks. The downtrenders are TSLA, FB, GOOG, INTC and TWTR.

That leaves LULU, CRM, AMZN (which will probably be too expensive for my standards) and AAPL remaining from my first batch of prospects. Of those, LULU and CRM have high IV ranks, 64 and 51, resepctively. AMZN and AAPL have IV ranks in the 20s.

9:55 a.m. New York time

SPY has begun the day trading within yesterday’s range. I anticipate no re-entry of my trading based on Elliott wave analysis.

As I noted yesterday, I shall be considering the wisdom of re-engaging with the odds-based strategy I used extensively before the bear market began on Jan. 26. The first batch of prospects I’ll be exploring are LULU, TSLA, ORCL, CRM, FB, GOOG, INTC, AMZN, AAPL, TWTR, NFLX.

By Tim Bovee, Portland, Oregon, Sept. 5, 2018

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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