11:50 a.m. New York time

And in rechecking AMGN’s earnings publication date, I find that the date is now Tuesday, Oct. 30, after the closing bell. So AMGN will be a trade for tomorrow, not today. I plan no trades today.

11:45 a.m. New York time

I’ve made my decision on today’s earnings play, and have chosen AMGN. It’s average post-earnings move is about half that of the alternative trade, FB. And FB is more prone to moves based on news reports and commentary, compared to AMGN.

11:15 a.m. New York time.

I’m looking at the two prospective earnings plays today the tech sector’s FB and AMGN from the health care sector, Both are in the top quintile of their respective implied volatility. I shall make a decision and post an analysis shortly.

The other prospects, grouped by implied volatility rank quintile, are:

1st quintile (81-100): ARNC, CAKE, DOD, MAS, RIG

2nd quintile (61-80): MDLZ, PFE

3rd quintile: (41-60): KO

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• Today’s Book

Crises of the Republic

Lying in Politics, Civil Disobedience, On Violence, Thoughts on Politics and Revolution

by Hannah Arendt

Truth be told, I spent much of the weekend obsessing about the violence that seems to be a dominant theme in American politics in 2018. The unsuccessful mail-bomb attempts and the synagogue murders on the weekend were the most visible manifestations. 

My evening video viewing helped frame my understanding, as I binge-watched the historical Babylon Berlin for a second time on Netflix, binge-watched  the fanciful Season 3 of The Man in the High Castle on Amazon Prime, and binge-read the many all-too-real news stories in the New York Times and Washington Post and elsewhere about the American violence.

But ultimately, streaming TV series weren’t enough. And so i turned to the thinker whose work has perhaps done the most to shed a harsh and revealing light on totalitarianism and how it comes into being. I shall tackle her masterwork The Origins of Totalitarianism later, after the heavy work of earnings season is done, but for now I’m focusing on four essays whose titles suggest our political world of 2018: About lies, protests, violence and revolution. Salient topics for our age.

As goes our politics, so goes our markets. I consider this book to be reading in support of my trading.

More about the book

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A snapshot of my options positions.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	3.66	65.56	(6.1)	(0.21)	18
EWZ	1.35	40.65	(57.0)	(0.49)	18
GILD	5.58	71.34	9.7	0.60	53
HON	6.21	145.38	2.1	0.13	18
IBM	10.13	122.81	(49.2)	(3.34)	18
JNJ	5.74	138.65	(2.5)	(0.14)	18
MCD	7.34	175.05	(18.4)	(1.14)	18
MSFT	7.91	107.15	8.0	0.69	53
PM	3.84	89.50	(12.0)	(0.41)	18
STZ	6.53	210.43	22.3	1.87	18
UPS	8.68	107.32	(5.9)	(0.48)	53
WBA	3.96	77.33	(11.2)	(0.40)	18

And my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	218.57	-2.4%	(5.39)	45
CHK	3.88	-3.0%	(0.12)	45
FXI	38.96	-5.5%	(2.25)	45
SPXU	39.82	-1.8%	(0.74)	167
TSLA	342.06	12.2%	37.07	28
VNQI	53.26	-6.2%	(3.55)	46

By Tim Bovee, Portland, Oregon, Oct. 29, 2018

Read More »

Do you ever get the impression that the economic reports cycle is much like the phases of the Moon? We drift along with a scattering of reports, sheeding little light on the market landscape, except perhaps for the laggard GDP, but generally a yawn. Half moon. New moon. Half moon again.

And then, bang!. The employment situation report shines out like a glorious full moon, dispelling the shadows and revealing contours of the economy. Market writers stretch their fingers as they sit at their keyboards, first to speculate on the impact of the new numbers, and then to describe the actual impact, which is often something entirely different. Employment week is the best week of the month, in my book.

And it has arrived, like the glorious full moon. The employment situation report will be published on Friday at 8:30 a.m. New York time, preceded by the usual private sector preview compiled by a payroll management company, the ADP employment report on Wednesday at 8:15 a.m.

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Today’s Book:

The Alchemy of Finance

By George Soros

George Soros has made headlines of late as the target of a domestic terrorist, a wannabe mail bomber. Before that he periodically made headlines as one of President Trump’s rhetorical bugbears, the so-called mastermind behind the Democratic Party’s efforts to roll back Trumpism.

But far before the hyper-politicized headlines of the moment, Soros was known as one of the most successful investors in the world, an immigrant who grew up in Nazi-occupied Hungary and eventually made his way to America, where by applying his energy, logic and wits, he grew his holdings to a net worth of $8 billion, and that’s what’s left over after he donated $18 billion to charity.

Soros is the American dream come true.

As traders — all politics set aside — it is that success that we look to in our never-ending quest to learn how to trade better. Soros in 2007 wrote a book about finance and the new trends he sees shaping the core of our global economy. He updated the book in 2015 in light of the collapse known as the Great Recession, with a forward by another voice worth listening to, former Fed Chair Paul Volcker, who in the early 1980s painfully but successfully wrung runaway inflation out of the American economy.

The Wall Street Journal in a review described Soros’ book this way: “An extraordinary … inside look into the decision-making process of the most successful money manager of our time. Fantastic.” I couldn’t have said it better myself.

More about the book.

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Employment week always brings a cluster of major reports, and this week is no exception.

Look for personal income and outlays on Monday at 8:30 a.m., the Institute of Supply Management manufacturing index on Thursday at 10 a.m. and international trade on Friday at 8:30 a.m.

Read More »

3:30 p.m. New York time

SPY has began its 2nd wave rise, as the Elliott wave count suggested it. I count it as an A wave within the 2nd wave. The best tactic would be to enter my bear position during the C wave. I shall be keeping a close on eye on it.

I shall post my weekly discussion of economic reporting, “The Week Ahead”, on Saturday.

11:25 a.m. New York time

Using Elliott wave analysis, by my count SPY continues to work its way down the final wave within the 1st wave of Minute degree {+1}. Once that is complete, then I would expect a 2nd wave to the upside, most like in the form of a Zig-Zag, to be followed by a sharp decline, a 3rd wave, to the downside.

I plan to enter SPY at some point in the 2nd wave.

The SPY chart covers 30 days with 30-minute bars.

9:50 a.m. New York time

I have two potential earnings plays in my pool this morning, and both have market capitalizations that are a bit lower than I like. I prefer to trade market caps of $100 million and greater, although I will sometimes go below that minimum in order to, for example, add a sector that I don’t yet have in my mix.

The two are CL and GT, each with implied volatility ranks in the 2nd percentile (61-80).

Also this morning, I shall take a look at the Elliott wave analysis of SPY to determine whether to re-enter my bear position.

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• Today’s Book

Option Volatility and Pricing

Advanced Trading Strategies and Techniques

by Sheldon Natenberg

This is the best book about how options work. It’s the book that taught me the most as I developed my trading style. It has made an invaluable contribution to my trading.

Writing with the clarity of an expert, Natenberg carries the reader of the foundations of option theory through hedging and volatility, risk analysis, position management and much more.

The author, Sheldon Natenberg, is a veteran market maker of both of equity options on the Chicago Board Options Exchange and commodity options on the Chicago Board of Trade.

He is presently on the training staff of the CBOE.

His book is always close at hand every day that I trade.

More about the book

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Here’s where my options positions stand this morning.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	4.03	4.24	(16.8)	(0.58)	21
EWZ	1.04	39.48	(20.9)	(0.18)	21
GILD	5.75	67.82	7.0	0.43	56
HON	6.80	147.21	(7.3)	(0.46)	21
IBM	9.83	125.60	(44.8)	(3.04)	21
JNJ	5.88	138.11	(5.0)	(0.28)	21
MCD	7.24	174.05	(16.8)	(1.04)	21
MSFT	8.04	107.47	6.5	0.56	56
PM	4.39	89.85	(28.0)	(0.96)	21
STZ	6.45	209.58	23.2	1.95	21
UPS	9.05	106.34	(10.4)	(0.85)	56
WBA	3.54	75.31	0.6	0.02	21

And my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	217.48	-2.9%	(6.48)	42
CHK	3.78	-5.5%	(0.22)	42
FXI	39.06	-5.2%	(2.15)	42
SPXU	41.14	1.4%	0.58	164
TSLA	317.86	4.2%	12.87	25
VNQI	52.79	-7.1%	(4.02)	43

By Tim Bovee, Portland, Oregon, Oct. 26, 2018

Read More »

Gilead Sciences Inc. (GILD)

Update 11/6/2018: I have exited my direction-neutral short iron fly options position on GILD for a profit. The stock has been tracing out a triangle since late October in the middle of its profit zone. What follows the triangle will be a sharp move away from maximum profit, so i decided to take the money and run.

I bought back the short position for a $5.15 debit per contract/share, with shares going for $70.13. The profit on the options was $103 per contract, which amounts to 16.7% of maximum potential profit.

Shares rose by 1.6% over 12 days, or a +44% annual rate. The options position produced a 20.0% return for a +608% annual rate.

---

I have entered a short iron fly spread on GILD, using options that trade for the last time 57 days hence, on Dec. 21. The premium is a $6.18 credit and the stock at the time of entry was priced at $69.13

I entered the trade just prior to the company’s publishing earnings, today, Oct. 25, after the closing bell.

The profit zone for this position is between $76.18 on the upside and $66.18 on the downside.

Read More »

11:55 p.m. New York time

I have entered a short iron fly position on GILD.

9:45 a.m. New York time

My top pick for am earnings play today is GILD.

AMZN is also on today’s list but it’s per-share price is greater than $1,700, which produces options trades that lack granularity, so I’m passing.

The four others on the list have implied volatility ranks in the 1st quintile, which is 81% to 100%. They are CMG, COG, INTC and WDC.

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• Today’s Book

The Myth of Capitalism

Monopolies and the Death of Competition

by Jonathan Tepper and Denise Hearn

As traders we know full well that capitalism is the air we breathe. No capitalism, no trading, and we become totally bored with our lives.

But “capitalism” is a word with many meanings encompassing many differences, and it is those differences that the authors focus on in this book. The United States, they argue, has gone from being a competitive marketplace to an economy dominated by a few powerful companies — Amazon, Google, Facebook and other gateways that must be used by others wanting to do business.

The book’s description doesn’t use the term, but to my ears what they were describing has more than a passing resemblance to the monopoly capitalism of the late 19th century, known as The Gilded Age. Just as monopoly then produced a host of ills, so, too, do the gatekeepers today. A book that looks backward to causes and forward to solutions.

More about the book

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Here is the status of my options positions at the time I exited.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	3.82	64.45	(10.7)	(0.37)	22
EWZ	0.78	33.35	9.3	0.08	22
HON	7.10	147.14	(12.0)	(0.76)	22
IBM	10.02	127.35	(47.6)	(3.23)	22
JNJ	5.28	135.39	5.7	0.32	22
MCD	8.00	176.50	(29.0)	(1.80)	22
MSFT	8.02	106.75	6.7	0.58	57
PM	3.65	88.67	(6.4)	(0.22)	22
STZ	6.70	210.93	20.2	1.70	22
UPS	9.09	105.74	(10.9)	(0.89)	57
WBA	3.34	74.64	6.2	0.22	22

And here is the status of my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	217.52	-2.9%	(6.44)	41
CHK	3.92	-2.0%	(0.08)	41
FXI	39.19	-4.9%	(2.02)	41
SPXU	41.11	1.4%	0.55	163
TSLA	311.01	2.0%	6.02	24
VNQI	52.76	-7.1%	(4.05)	42

By Tim Bovee, Portland, Oregon, Oct. 25, 2018

Read More »

Microsoft Corp. (MSFT)

Update 11/7/2018: I have exited MSFT for a debit of $828 per contract, $32 less than the $860 entry credit, with shares trading at $110.64, up $r.91 from entry.

Shares rose by 4.6% over 14 days, or a +121% annual rate. The options position produced a 3.8% return for a +101% annual rate.

---

I have entered a short iron fly spread on MSFT, using options that trade for the last time 58 days hence, on Dec. 21. The premium is a $8.60 credit and the stock at the time of entry was priced at $105.73.

I entered the trade to coincide with an earnings announcement, today, Oct. 24, after the closing bell.

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

Read More »

11:50 a.m. New York time

I have entered a short iron fly position on MSFT.

11:20 a.m. New York time

The earnings announcement for MSFT has changed from the list I am working from, and I shall analyze it as an earnings play today.

10:25 a.m. New York time

I have no earnings play that I care to take today. There are four prospects, AKS, GOOG, V and WPG.

AKS and V have implied volatility rates in the 3rd quintile (41-60), which is lower than I want to go. WPG is in the 2nd quintile, but has a lower market capitalization than I like. Market cap translates fairly closely into liquidity. AKS also has a smaller market cap than I like.

That leaves GOOG, which, at $1,096 per share, lacks the granularity needed to properly size a trade for someone with my resources. That’s personal for my account; others might find it to be an attractive.

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• Today’s Book

The Socionomic Theory of Finance

by Robert Prechter

After sharp drops like those the markets have experienced this week, everyone looks up, puzzled, and asks “Why?” The professional market watchers — from Bloomberg and The Wall Street Journal on down the size scale — all to a version of this: “The markets slid sharply today as investors grew nervous over ——“. Fill in the blanks.

I remember a time when every day, the U.S. markets were said to swing wildly because of Greece. I mean, Greece? Really? Yesterday’s swings were the result of uncertainty over the death of a Saudi journalist who wrote for an American newspaper, as well as concern over Brexit? Really? Since neither is new news?

In the 2nd quarter of this year, on average 132,628,945 shares of stock were traded each day. That’s not even looking at the options trades. Does it seems reasonable that all of those transactions made by all of those traders really had a single, simple, overwhelming reason for taking action? Especially when the causes cited are, shall we say, less than macroeconomic in their implications.

It hasn’t made sense for a long time to Robert Prechter, the leading practitioner of Elliott wave analysis, and he developed a counter-theory, which he calls socionomics. This book is the fullest account of what moves markets under his theory.

I’ve read it, and found it to be a useful corrective to the simplistic ways people think about the markets. Well worth the time investment.

More about the book

---

I’ve also taken a look at SPY with an eye toward re-entering using the options that expire Dec. 21.

A chart of the movement since the Sept. 20 peak shows that, using Elliott wave analysis, SPY yesterday indeed completed the 1st wave of the Minute degree {+1}. The chart covers 30 days with 30-minute bars.

The 2nd chart, below, covers two days with five-minute bars. That closer view suggests that SPY has completed the A wave within the uptrending 2nd wave of the Minute degree. The pattern would be a B wave retracing part of the A-wave rise, and then a C-wave to the upside complete the Minute 2nd.

The re-entry point for my bear positions on SPY would be at the end of the C wave, which would mark the beginning of the 3rds Minute wave down, which should bring significant near-term decline.

Here is the status of my options positions, including SPY at the time I exited.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	3.74	65.05	(8.4)	(0.29)	23
EWZ	0.98	38.06	(14.0)	(0.12)	23
HON	6.02	149.90	5.0	0.32	23
IBM	8.95	129.55	(31.8)	(2.16)	23
JNJ	5.88	139.45	(5.0)	(0.28)	23
MCD	7.79	174.77	(25.6)	(1.59)	23
PM	3.72	88.35	(8.5)	(0.29)	23
STZ	6.40	213.51	23.8	2.00	23
UPS	7.68	110.56	6.3	0.52	58
WBA	3.96	77.02	(11.2)	(0.40)	23

And here is the status of my shares positions:

sym	share price	net result %	net profit $	days held
AAPL	221.31	-1.2%	(2.65)	40
CHK	4.32	8.0%	0.32	40
FXI	39.54	-4.1%	(1.67)	40
SPXU	38.75	-4.5%	(1.81)	162
TSLA	288.75	-5.3%	(16.24)	23
VNQI	53.03	-6.7%	(3.78)	41

By Tim Bovee, Portland, Oregon, Oct. 24, 2018

Read More »

United Parcel Service Inc. (UPS)

Update 11/8/2018: I have exited UPS for a $610 debit per contract, a $210 profit, with the shares price at $111.30 when I exited, down $2.65 from the entry point.

Shares decline by 2.2% over 16 days, or a -53% annual rate. The options position produced a 34.4% return for a +785% annual rate.

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I have entered a short iron fly spread on UPS, using options that trade for the last time 59 days hence, on Dec. 21. The premium is an $8.20 credit and the stock at the time of entry was priced at $113.95.

I entered the trade to coincide with an earnings announcement, on Wednesday, Oct. 24, before the opening bell.

The profit zone for this position is between $123.20 on the upside and $108.20 on the downside.

Read More »

11:40 a.m. New York time

I have entered a short iron fly position on UPS.

11:05 a.m. New York time

I have updated the SPY analysis with results.

10:20 a.m. New York time

Using Elliott wave analysis, I’ve labeled the current Minuette wave down since the Sept. 20 high as the 5th and final wave of the series. It has satisfied the minimum requirement for such a wave, but 5ths can so surprising power, so it may have quite some distance to go.

I won’t re-enter until Wednesday, Oct. 24, at the soonest.

The SPY chart below covers 30 days with three-hour bars.

10 a.m. New York time

Having exited SPY profitably shortly after the open, my top priority will be to redo the Elliott wave analysis to determine when to roll forward to a December expiration.

It’s another heavy day for earnings announcements. My top prospect is UPS, with an implied volatility rank in the 1st quintile. (81-100).

Other symbols on the prospects list:

1st quintile (81-100): UNM, KNX

2nd quintile (61-80): TXN, GG, F, FCX, JNPR

3rd quintile (41-60): COP, T

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Today’s Book

Atomic Habits

An Easy & Proven Way to Build Good Habits & Break Bad Ones

by James Clear

Here’s a secret not often spoken of in the “make a million in a week” circles of trading: Good trading is about sticking to the rules we’ve picked, and sticking to the rules is about good habits.

The author, James Clear, writes about the intersection of behavioral science and the habits that give structure to our days. When we have difficulty adopting new habits, the problem isn’t our will power but our system. 

How should I judge my trades? The wisest words on that subject that I’ve heard are these: Whether a trade makes money or loses it, if the trader followed his or her rules, then that trade was a success.

James Clear shows how to reach the point where by that standard, every trade is a success.

More about the book

---

Here is the status of my options positions, including SPY at the time I exited.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	4.00	64.40	(15.9)	(0.55)	24
EWZ	1.03	39.02	(19.8)	(0.17)	24
HON	5.82	150.31	8.2	0.52	24
IBM	9.39	129.32	(38.3)	(2.60)	24
JNJ	5.94	138.11	(6.1)	(0.34)	24
MCD	6.67	174.53	(7.6)	(0.47)	24
PM	3.77	88.05	(9.9)	(0.34)	24
SPY	1.67	270.95	61.7	2.69	24
STZ	6.78	214.07	19.3	1.62	24
WBA	3.95	7,735.00	(11.0)	(0.39)	24

And here is the status of my shares positions:

sym	share price	net result %	net profit $	days held
AAPL	216.91	-3.1%	(7.05)	39
CHK	4.38	9.5%	0.38	39
FXI	39.45	-4.3%	(1.76)	39
SPXU	39.27	-3.2%	(1.29)	161
TSLA	277.60	-9.0%	(27.39)	22
VNQI	52.84	-7.0%	(3.97)	40

9:40 a.m. New York time

I have exited SPY for a profit.

By Tim Bovee, Portland, Oregon, Oct. 23, 2018

Read More »

McDonald’s Corp. (MCD)

Update 11/7/2018: I have exited MCD for a $962 debit per share, down $342 from entry, with shares at $183.29, up $16.14 from entry.

Shares rose 9.7% over 16 days, or a +220% annual rate. The options position produced a -35.6% loss for a -11% annual rate.

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I have entered a short iron fly spread on MCD, using options that trade for the last time 25 days hence, on Nov. 16. The premium is a $6.20 credit per contract share and the stock at the time of entry was priced at $167.15

My decision to enter the trade was based on proximity to an earnings announcement, on Tuesday, Oct. 23, before the opening bell.

The profit zone for this position is between $173.50 on the upside and $163.50 on the downside.

Read More »