Live: Thursday, Sept. 19, 2019

12:40 p.m. New York time

In my managed shares portfolio, CANE produced a sell signal on the directional movement index, and I replaced it with EWL, which tracks Swiss stocks.

Two of my short iron condor holdings go ex-dividend on Friday. XLY is out-of-the-money for both short calls and puts and so is unlikely to be assigned. XOP is out-of-the-money by only 7 cents as of this writing and will bear close watching up to the closing bell. I judge XOP to have a greater risk of assignment that XLY, but not a huge risk.

Rather that go through a full write-up on my experimental earnings plays, as I did with FDX, I’ve pulled together a spreadsheet that I’ll use to track hypothetical earnings plays on all of the stocks that meet my liquidity standards. The spreadsheet is on Google Sheets and can be accessed here.

By Tim Bovee, Portland, Oregon, September 19, 2019

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Live: Wednesday, Sept. 18, 2019

3:25 p.m. New York time

In my managed shares portfolio, EWM moved to a sell signal on the directional movement indicator and I exited, replacing it with XLP, consumer staples.

sym slot # entry $/share sector
BOTZ 1 19.32 robotics
CANE 2 6.55 commodity-sugar
XLP 3 60.66 consumer staples
UNG 4 19.17 energy
UAE 5 14.18 int-uae

1:55 p.m. New York time

Looking ahead to the next potential earnings plays, I have three highly liquid prospects on the list.

  • DRI, trade today today, is a pass. It has a 53% buy rating from Morningstar, but only three stars, one start short of my standard. It has a neutral 3 rank from Zacks, with a negative earnings surprise predictor of -1.30.
  • INFO, trade date Sept. 24, is also a pass, with a 59% buy rating from Morningstar but only two stars. Zacks gives it a neutral 3 rank and no surprise on the ESP (0.0%)
  • NKE, trade date Sept. 24, is a candidate for a paper trade. It has a buy rank of 75% and four stars from Morningstar, which are excellent, but a bearish 4 rank from Zacks, despite a +2.82% ESP. Again, paper only. I want to see what that ESP produces on the chart with these very mixed metrics.

11:25 a.m. New York time

I’ve updated my FDX paper-trade analysis with results.

10 a.m. New York time

XOP returned to its profit zone this morning, barely, and is no longer considered to be an at-risk trade.

FDX, as expected, dropped sharply after the company failed to meet analysts’ consensus forecast. My shares paper trade fell and I, hypothetically, exited the position for a loss. The paper options position remains within the profit zone, meaning it can be expected to be profitable at expiration. I shall update the paper trade analysis later this morning.

By Tim Bovee, Portland, Oregon, September 18, 2019

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Experimental: FDX Analysis

FedEx Corp. (FDX)

Update 9/18/2019As expected from the Zacks earnings surprise prediction (ESP) indicator, FDX failed to meet analysts’ consensus expectation, coming in 5.8% below the mark. The price fell sharply at the open. What does that mean for our paper trades?

Under my evolving rules for earnings plays, the shares trade after the announcement came under the same rules as my ETF-focused managed shares trades. The directional movement index (DMI) gave a sell signal at the open. I hypothetically exited for a loss four minutes after the opening bell, for $152.17, a $20.23 loss.. The DMI, below, immediately turned bearish.

FDX_20190918

At that price, FDX stood $1.58 below the profit zone of my short bull put spread position. After the earnings announcement, the position would come under the same rules as my iron condor. The decline had placed FDX far enough out that it would take 7.65 days to return to the profit zone at the present rate of change. Therefore, the rules would mandate an exit.

In constructing the short spread I had used the same techniques as I use with my iron condors, placing the short strike at around delta 20 and the long at around delta 6. Given the magnitude of the movement, it wasn’t enough.

So I exited that paper trade as well, hypothetically four minutes after the opening bell, for $5.38, or a $4.13 loss.

Shares fell by 11.7% percent over one day, for a -4,283% annual rate. The options position produced a -76.8% loss for a -28,020% annual rate.

Bottom line: The quality of the signals used for trading matters. In this case, the Zacks ESP signal was crucial, and the Zacks rank at 3 was neutral, a sharp contrast to Morningstar’s positive assessment.

I’ll make some more paper trades, next time in alignment with all the signals, and see how things work out.


This is a PAPER TRADE, an experiment whether a strategy I have in mind will work as an earnings play. The symbol that I’ll use for this experiment is FDX, which publishes earnings after the closing bell today, Tuesday, September 17, 2019.

It’s actually two experiments. I’ll look at it both as a short bull put options spread, and also as a long shares trade. The options are leveraged, and so have the prospect of a larger win with a larger, although limited, loss. The share have no leverage, a prospect of less of a win, but also a small loss, although it can, however unlikely, result in a total loss of all that was put in the position if the price goes down to zero. As always in the markets, risk begets reward, Risk is the Mother of Profit.

A stock is a prospect for an earnings play if it meets these criteria from two separate analytical houses. I use Morningstar and require a buy rating of 50% or greater and a four star or better rating overall. I also used Zacks and require a rank of 3 or better and an expected surprise prediction (ESP) of neutral or positive (zero or greater).

Those analytical systems are just the ones I use. There’s nothing magical about them. Other analysts or even a flip of coin can work in selecting an earnings play, although the results will no doubt vary depending upon what we choose.

FDX, as it turns out, is fine on the Morningstar side: A 70% buy rating and four shiny stars. And it starts out fine on the Zacks side, with a rating of 3. However, the ESP has moved into negative territory (-1.26%), disqualifying it from a trade.

Despite FDX being set up for failure on one metric, lets try the paper trades and see how they work out.

The analysis below is for a paper trade. I put no money at risk.

I have (hypothetically) entered a short bull put spread on FDX, using options that trade for the last time 31 days hence, on October 18. The premium is a 3.34 credit and the stock at the time of entry was priced at $172.40.

The profit zone for this position is unlimited on the upside and at $151.66 on the downside.

The implied volatility rank (IVR) stands at 56%.

Premium: $1.25 Expire OTM
FDX-bull put spread Strike Odds Delta
Puts
Long 140.00 95.0% 4
Break-even 153.75 89.0% 10
Short 155.00 83.0% 15

The profit zone covers a 10.8% move to the downside of the entry price.

The risk/reward ratio is 11:1, with maximum risk of $1,375 and maximum reward of $125 per contract.


And that’s the options paper trade. For the shares paper trade, I’ll use an entry debit of $172.40. I shall track both trades through their lifespans.

By Tim Bovee, Portland, Oregon, September 17, 2019

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Live: Tuesday, Sept. 17, 2019

12:55 p.m. New York time

I’ve posted a hypothetical trade — a paper trade — on FDX to toy with the idea of how best to do earnings plays. The truth of the stock market is that usually, not a lot happens until the approach of an earnings release, and then traders start positioning, causing the price to move, until earnings day, when there is a random quantum leap in one direction or another, or no leap at all. Earnings day is a coin toss, but coin tosses can be profitable.

11:15 a.m. New York time

XOP remains beyond the profit zone of my short iron condor position, but has moved closer to the upper boundary. At the current rate of change it would only take 0.35 days to return to the profit zone.

We are 31 days left before the options expire, and 10 days before I manage the winners — currently only XLY — and move to the sudden-death phase remaining positions — GLD and XOP.

By Tim Bovee, Portland, Oregon, September 17, 2019

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Live: Monday, Sept. 16, 2019

10:40 a.m. New York time

I ran my list of 90+ exchange-traded funds looking for something to fill the empty space in my managed shares portfolio. I rejected energy plays, since that was based on news and will likely be followed by a slight decline to correct the initial panicky buying spree. I have two international holdings and am reluctant to add a third. The only thing else that interested me among the new signals was agricultural commodities, specifically cane sugar. And so I bought shares in CANE. Here’s the line-up:

sym slot # entry $/share sector
BOTZ 1 19.32 robotics
CANE 2 6.55 commodity-sugar
EWM 3 28.25 int-malaysia
UNG 4 19.17 energy
UAE 5 14.18 int-uae

10:05 a.m. New York time

My short iron condor position on XOP — the SPDR S&P Oil & Gas Exploration & Production exchange-traded fund — rose above its profit zone after a weekend attack against oil processing facilities in Saudi Arabia reduced production by half.

After opening hight this morning, XOP has declined. The price is 0.47 days above the profit-zone boundary, as calculated by the rate of change metric, and under my rules I need take no action until the distance is one day or greater. The position is 32 days away from expiration.

In my managed shares portfolio, I have two long-share positions that give exposure to the fossil fuel sector: UAE, which tracks stocks in the United Arab Emirates, and UNG, which tracks the price of natural gas. UNG rose after the attack, and UAE held steady.

My managed share holdings:

sym slot # entry $/share sector
BOTZ 1 19.32 robotics
(empty) 2
EWM 3 28.25 int-malaysia
UNG 4 19.17 energy
UAE 5 14.18 int-uae

I was intending to try something new in the empty slot. We’re against getting some earnings announcements, and I wanted to to try a long earnings play as a part of the mix. FDX publishes earnings after the closing bell on Tuesday, Sept. 17.

My rules for selecting earnings plays run like this: The symbol must have a four star rating or better from Morningstar, a rating of 3 or better from Zacks, and a Zacks expected surprise prediction (ESP) of zero or greater (excluding negative ESP scores, which denote a negative surprise expectation).

On Friday FDX’s Zacks rating was 3, but the analysts dropped it to 4 over the weekend, so I’m left without a trade. I’ll make a hypothetical “paper” trade, and see how that goes.

Also, I’ll attempt to fill the empty slot with an ETF today.

By Tim Bovee, Portland, Oregon, September 16, 2019

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Live: Friday, Sept. 13, 2019

3:25 p.m. New York time

My three remaining short iron condor positions — on GLD, XLY and XOP — continue to stay in the profit zone (between the two breakeven points).

On my managed shares portfolio, I’ve exited SLV after receiving a bear signal on the directional movement index, for a $16.75 credit, producing a 5.5% return over 37 days.

I’ve left the slot empty, preserving funds to test an earnings play method I want to try next week. Here’s the present managed shares line-up:

sym slot # entry $/share sector
BOTZ 1 19.32 robotics
(empty) 2
EWM 3 28.25 int-malaysia
UNG 4 19.17 energy
UAE 5 14.18 int-uae

By Tim Bovee, Portland, Oregon, September 13, 2019

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Live: Thursday, Sept. 12, 2019

7:40 a.m. New York time

I’ve updated the TLT Analysis with results of the trade.

7:30 a.m. New York time

I’ve updated the IWM Analysis with results of the trade.

3:42 p.m. New York time

And that’s a wrap until later in the day.

3:37 p.m. New York time

Exited IWM for a $3.28 debit with shares trading at $157.32.

3:35 p.m. New York time

Exited TLT for a $2.84 debit with shares trading at $138.51.

3:25 p.m. New York time

IWM  and TLT have both moved beyond their profit zones, and I have placed exit orders for a loss in each case. The decision goes like this:

  • Is the share price above the calls break even point or below the puts break even point?
    • Yes
      • Is the distance from the breakeven point divided by the rate of change metric greater than 1, meaning more than a day away from returning to the profit zone?
        • Yes: Exit
        • No: Do nothing
    • No
      • Do nothing.

By that calculation, IWM is 1.54 days above the breakeven point and TLT is 5.59 days below the breakeven point. If I succeed in existing, I shall post here but update the analyses with results after the close.

9:50 a.m. New York time

Speaking of rules, I’ve updated my Trading Rules section, and also the About section. Click on “Trading Rules” and “About” on the menu at the top of Private Trader.

9:45 a.m. New York time

Share prices on two of my short iron condor options positions remain beyond the strike zone — that profitable region between the short call strike and the short put strike. This morning, as at the close, IWM is above the short call strike, and TLT is below the short put strike. With 36 days to go until expiration, my rules require no action.

By Tim Bovee, Portland, Oregon, September 12, 2019

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Live: Wednesday, Sept. 11, 2019

4:10 p.m. New York time

And my managed shares holdings at the close.

sym slot # entry $/share sector
BOTZ 1 19.32 robotics
SLV 2 15.88 metals
EWM 3 28.25 int-malaysia
UNG 4 19.17 energy
UAE 5 14.18 int-uae

4:05 p.m. New York time

And at the closing bell, IWM remains above the short call strike price of my short iron condor, TLT remains below the short put strike, and GLD and XOP have returned to the range between the strikes.

XLY remains between the strikes, having never broken beyond the range.

11:30 a.m. New York time

Three of my short iron condor options positions are trading beyond their short strikes today:

  • GLD, below the put the strike
  • IWM and XOP, above the call strikes

Neither requires management at this point.

The call and put strikes are boundaries that issue an early warning when crossed. A position leaves the profit zone when it crosses the breakeven point, which has not yet happened for any of holdings for the OCT options cycle.

By Tim Bovee, Portland, Oregon, September 11, 2019

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Live: Tuesday, Sept. 10, 2019

4:10 p.m. New York time

And at the closing bell,

  • GLD closes at $140.18, below its short put strike of $141
  • TLT, at $140.69, below its short put strike of $142

IWM, XLY  remain between the short strikes, and XOP has returned to between the strikes, having been above the short call strike earlier in the day.

12:55 p.m. New York time

TLT has dropped below the put options strike price, $142, in my short iron condor position. Action: Do nothing. Odds of expiring profitably, above the strike price, are 80%; unprofitably below, 20%. So far today the low has been $141.83.

11:50 a.m. New York time

GLD has moved below the put options strike price, $141, in my short iron condor position. Under my rules, I use the same tactic as with XOP (below): Do nothing for now.

The position is structured so that GLD has an 86% chance of expiring profitably above the put strike, giving a 14% chance of closing below, in the unprofitable zone.

The low so far today is $140.67.

9:50 a.m. New York time

And the first excitement in the OCT options cycle (although not very exciting).

The price of XOP shares has moved above the short call strike price of my short iron condor on that series. The strike is $24, and XOP triggered an alert when it moved up to $24.13. With 38 days to go before the options expire, on October 18, my response to the break above is to do nothing, and that rule holds until 21 days prior to expiration, on September 27.

And indeed, three minutes after breaking out, XOP withdrew to below the short call strike price. It may break out several times more today, but it will be of little significance at this point.

The position has an 81% chance of expiring within the short strikes (calls to the upside, puts to the downside), which means a 19% chance of closing above or below the range of the two strikes. Still good odds of a profitable play.

By Tim Bovee, Portland, Oregon, September 10, 2019

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XOP Analysis

SPDR S&P Oil & Gas Exploration & Production ETF (XOP)

I have entered a short iron condor spread on XOP, using options that trade for the last time 44 days hence, on October 18. The premium is a $0.44 credit and the stock at the time of entry was priced at $21.75.

The profit zone for this position is between $24.44 on the upside and $17.44 on the downside.

The implied volatility rank (IVR) stands at 40.6%.

Premium: $0.44 Expire OTM
XOP-iron condor Strike Odds Delta
Long 26.00 95.0% 6
Break-even 24.44 88.0% 14
Short 24.00 81.0% 22
Puts
Short 19.00 80.0% 16
Break-even 17.44 86.5% 11
Long 17.00 93.0% 6

The premium is 22.0% of the width of the position’s wings.

The profit zone covers a 12.4% move to the upside and a 24.7% move to the downside of the entry price, for total coverage of 37.1%

The risk/reward ratio is 3.5:1, with maximum risk of $156 and maximum reward of $44 per contract.

By Tim Bovee, Portland, Oregon, September 4, 2019

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