DAL Analysis

Delta Air Lines Inc. (DAL)

DAL publishes earnings on Wednesday before the opening bell.

I shall use the MAY series of options, which trades for the last time 38 days hence, on May 19.

Implied volatility stands at 32%, which is 2.1 times the VIX, a measure of the volatility of the S&P 500 index.

DAL’s IV stands in the 27th percentile of its annual range and the 96th percentile of its most recent broad movement, which is in a fairly narrow range typical of DAL for the past two months.

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The Week Ahead: GDP, income and outlays, trade

 

A third and final estimate of 4th quarter gross domestic product will be published on Thursday. Other major reports: International trade in goods on Tuesday and personal income and outlays on Friday.

All three reports will be released at 8:30 a.m. New York time.

Federal Reserve Chair Janet Yellen addresses the National Community Reinvestment Coalition’s annual conference in Washington, D.C. on Tuesday at 12:50 p.m. Her topic: Addressing Workforce Development Challenges in Low-Income Communities.

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The Week Ahead: Durables, houses

 

Big ticket purchases and the housing sales will punctuate the trading week

Durable goods orders covers purchases with a useful life of three years or more. The statistics will be published on Friday at 8:30 a.m. New York time.

The housing sales data comes in two installments: Existing homes sales, the greater part of the market, on Wednesday and new home sales on Thursday, each at 10 a.m.

Also out during the week, the Purchasing Managers Institute composite flash report on Friday at 9:45 a.m.

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The Week Ahead: GDP, durables, trade and more. Bonus: Yellen

 

Gross domestic product for the final quarter of 2016 gets a second look on Tuesday at 8:30 a.m. New York time.

Other major economic reports that hit the Street during the week: Durable goods orders on Monday at 8:30 a.m., international trade in goods on Tuesday at 8:30 a.m., and on Wednesday, personal income and outlays at 8:30 a.m. and the Institute of Supply Management manufacturing survey at 10 a.m.

Fed Chair Janet Yellen discusses the economic outlook in an appearance before the Executive Club of Chicago on Friday at 1 p.m. New York time.

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The Week Ahead: Prices, retail, industry, housing

Two price reports will be published during the week, the consumer price index on Wednesday and the producer price index on Tuesday, each at 8:30 a.m. New York time.

The reports are important in helping to form traders’ expectations for future interest rates.

Also out, on Wednesday,  retail sales at 8:30 a.m., industrial production at 9:15 a.m. Housing starts will be published on Thursday at 8:30 a.m.

Fed Chair Janet Yellen makes her semi-annual reports to Congress. She testifies before the Senate Committee on Banking, Housing and Urban Affairs on Tuesday and before the House Committee on Financial Services. Both appearances begin at 10 .m.

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TSN Analysis

Update 12/12/2016: TSN gapped downward sharply after earnings were published but in subsequent weeks recovered about half of the loss. I exited with a profit.


Shares declined by 6.5% over 24 days, or a -99% annual rate. The options position produced a 113.5% yield on debit for a +1,728% annual rate.


The chicken, beef and pork processing company Tyson Foods Inc. (TSN), headquartered in Springdale, Arkansas, publishes earnings on Monday before the opening bell.

[TSN in Wikipedia]

 

TSN

I shall use the JAN series of options, which trades for the last time 63 days hence, on Jan. 20.

Ranges

Implied volatility stands at 44%, which is 3.4 times the VIX, a measure of volatility of the S&P 500 index. TSN’s volatility stands in the 95th percentile of its annual range. The price used for analysis was $67.17.

Ranges implied by options and earnings

Week SD1 68.2% SD2 95% Earns
Upper 79.48 91.78 70.90
Lower 54.86 42.56 63.45
Gain/loss ±$12.31 ±$24.61 ±$3.73

Implied volatility 1 and 2 standard deviations; central tendency earns moveThe Trade

TSN peaked Sept. 5 and then reversed downward, ending a rise lasting nearly eight years. The Elliott wave count suggests that the present move to the downside is the beginning of a major correction, but it is not a certainty.

The price since September is in the fifth wave of its decline, suggesting that a reversal to the upside is near. Such a reversal would be a counter-trend correction, and I would expect it to stay well below the September peak.

Zacks Investment Research gives TSN a neutral rating, with some suggestion in recent analysts’ alterations of their assessments that a negative earnings surprise is expected.

TSN’s brokerage coverage is slim, but in aggregate they come down with a 33% enthusiasm rating, with two thirds of six analysts issuing strong buy recommendations.

The stock’s price has risen in the trading session after three of the last four earnings announcements.

I’ll construct a direction neutral trade skewed to the downside.

Iron condor, short the $72.50 calls and long the $75 calls,
short the $57.50 puts and long the $55 puts,
sold for a credit and expiring Jan. 21.
Probability of expiring out-of-the-money

JAN Strike OTM
Upper 72.50 74.3%
Lower 57.50 80.6%

The premium is $0.79, which is 32% of the width of the position’s wings.

The risk/reward ratio is 2.2:1.

The zone of profit in the proposed trade covers a $7.50 move either way. The biggest immediate move after each of the past four earnings announcements was $5.15, and the average was $3.26. After eliminating the maximum and minimum post-earnings movements, the central tendency is $3.73.

Decision for My Account

I have entered a position on TSM as described above. The stock at the time of entry was priced at $67.22.

— Tim Bovee, Portland, Oregon, Nov. 18, 2016

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.

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Based on a work at www.timbovee.com.