3:20 p.m. New York time

I’m wrapping up trading for the week. On Saturday, look for The Week Ahead, a discussion of next week’s economics reporting.

11:20 a.m. New York time

I’ve passed on HAL after preparing an analysis.

10:10 a.m. New York time

As the week winds down, so does the pace of earnings announcements. I have one potential earnings play on my desk, HAL, and shall analyze it this morning.

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Today’s Book

The Laws of Human Nature

by Robert Greene

Robert Greene’s new book delves deeply into the subject of our emotions as an essential tool for our social species, where relating to others — empathy — can mean the difference between life and death. Knowing why we have emotions, knowing how and when to control them and understanding the motivations and emotions of others, these are the goals discussed by Greene, along with tactics for mastering this complex core of the human experience.

As one of my early trading mentors one told me, emotion is the enemy of success. “Whether you make money or lose isn’t how you judge a trade”, he continued. “If you followed your rules, then the trade was a success.” Greene’s book provides a map toward the destination of mastering that enemy.

More about the book

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My present options holdings:

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	2.83	69.24	18.0	0.62	28
EWZ	1.01	39.25	(17.4)	(0.15)	28
HON	5.99	155.65	5.5	0.35	28
IBM	9.10	131.55	(34.0)	(2.31)	28
JNJ	5.93	139.20	(5.9)	(0.33)	28
PM	3.73	88.69	(8.7)	(0.30)	28
SPY	4.22	279.15	3.2	0.14	28
STZ	9.80	224.56	(16.7)	(1.40)	28
WBA	3.99	77.48	(12.1)	(0.43)	28

And shares holdings:

sym	share price	net result %	net profit $	days held
AAPL	220.65	-1.5%	(3.31)	35
CHK	4.85	21.3%	0.85	35
FXI	39.78	-3.5%	(1.43)	35
SPXU	36.01	-11.2%	(4.55)	157
TSLA	266.01	-12.8%	(38.98)	18
VNQI	54.07	-4.8%	(2.74)	36

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

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Honeywell International Inc. (HON)

Update 11/7/2018: I have exited HON for $600 per contract, a gain of $34 per contract, with shares trading at $149.10, down $6.70 per share. The exit price was at 5.4% of maximum potential profit.

Shares declined by 4.3% over 20 days, or a 78% annual rate. The options position produced a 5.7% return for a 103% annual rate.

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I have entered a short iron fly options spread on HON, using options that trade for the last time 29 days hence, on Nov. 16. The premium is a $6.34 credit and the stock at the time of entry was priced at $155.80.

I made the decision to enter the trade because of its proximity to an earnings announcement, on Friday, Oct. 19, before the opening bell.

The profit zone for this position is between $161.34 on the upside and $151.34 on the downside.

Read More »

11:30 a.m. New York time

PG’s strike prices wouldn’t allow me to construct a workable iron fly position, so I set it aside and instead entered an iron fly on HON, which was much better positioned relative to the at-the-money point.

10:25 a.m. New York time

My primary candidate for an earnings play today is PG, which combines an implied volatility rank high than the other prospects with a larger market capitalization.

The also-rans are AXP, CLF, HON and STI.

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Today’s Book

Trumponomics:

Inside the America First Plan to Revive Our Economy

by Stephen Moore and Arthur B. Laffer

Sit down to any American political discussion these days and it will take one of two forms. The first, “He’s crazy! He’s destroying America!” The second: “MAGA! He’s making America great again, and it’s about time.”

Heritage Foundation chief economist Stephen Moore and Arthur B. Laffer, the economist who discovered the a Laffer Curve, cut through the rhetoric to uncover the heart of President Trump’s attempt to transform the American economy. He’s neither on the left nor the right, the two conservatives conclude, but rather has adopted an economic populism that combines elements of both. The result? The authors think he can pull it off, bringing a new age of prosperity for all Americans.

And as the mid-term elections loom and the 2020 presidential election campaigns prepare for their kick-offs, what subject could be more important than an assessment of where the Trump administration is taking us?

More about the book

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I have no exits in sight at this point.

Here’s where my options positions stand:

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	2.90	70.08	15.9	0.55	29
EWZ	1.05	39.33	(22.1)	(0.19)	29
IBM	8.76	132.15	(29.0)	(1.97)	29
JNJ	5.67	138.42	(1.3)	(0.07)	29
PM	3.69	88.40	(7.6)	(0.26)	29
SPY	4.04	279.21	7.3	0.32	29
STZ	10.08	225.84	(20.0)	(1.68)	29
WBA	3.91	77.07	(9.8)	(0.35)	29

And my shares positions:

sym	share price	net result %	net profit $	days held
AAPL	218.53	-2.4%	(5.43)	34
CHK	4.61	15.3%	0.61	34
FXI	39.09	-5.1%	(2.12)	34
SPXU	36.05	-11.1%	(4.51)	156
TSLA	266.80	-12.5%	(38.19)	17
VNQI	53.81	-5.3%	(3.00)	35

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

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Philip Morris International Inc. (PM)

Update 11/8/2018: I’ve exited PM at a cost of $400 per contract, a loss of $57 from the credit at entry. Shares were priced at $89.24, up $4.79 from their price at entry.

Shares rose by 5.7% over 22 days, or a 94% annual rate. The options position produced a 14.3% loss for a -236% annual rate.

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I have entered a short iron fly options spread on PM, using options that trade for the last time 30 days hence, on Nov. 16. The premium is a $3.43 credit and the stock at the time of entry was priced at $84.45

I made the decision to enter the trade because it coincides with an earnings announcement, on Thursday, Oct. 18.

The profit zone for this position is between $88.43 on the upside and $83.43 on the downside.

Read More »

11 a.m. New York time

I’ve entered an iron fly options spread on PM.

10:25 a.m. New York time

I’ve decided to pass on TRV as an earnings trade today. I shall instead go with PM, which has a higher implied volatility rank and greater market capitalization.

10:15 a.m. New York time

I have updated the LEN analysis with results.

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Today’s Book

Capitalism in America: A History

by Alan Greenspan and Adrian Wooldridge

Whatever our personal politics, as traders, capitalism is the sea in which we swim. In Capitalism in America, economist and former Federal Reserve chairman Alan Greenspan joins with The Economist’s Adrian Wooldridge, who writes the Begehot column,to explore the forces that have driven the American economy to where it stands today, from slavery in the pre-Civil War South to the redefinition of government’s role under President Franklin Roosevelt and onward to our post-Great Recession present.. It will be published Oct. 16, and it looks like a book that will earn a place on my shelf

More about the book

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9:45 a.m. New York time

I have exited LEN for a loss. The stock goes ex-dividend on Thursday, Oct. 18, which increases the chance of an assignment, which I would prefer to avoid. I shall update the analysis with results later today.

I have five potential earnings plays on the table this morning. TRV, an insurance company, is the most interesting at this point, although its IV rank, in the 60s, is the lowest of the prospects.

BBT and KEY are banks, and I already have exposure in that reason and so I am striking them from the list without further analysis.

The global tobacco company PM will be my next choice if TRV doesn’t work out, and the metals refining company AA is the third prospect.

Here’s is the status of my options holdings, including the just-exited LEN.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	2.88	69.41	16.5	0.57	30
EWZ	1.01	39.11	(17.4)	(0.15)	30
IBM	8.09	135.28	(19.1)	(1.30)	30
JNJ	5.19	137.75	7.3	0.41	30
LEN	3.59	43.32	(11.1)	(0.36)	30
SPY	4.79	279.58	(9.9)	(0.43)	30
STZ	10.90	226.95	(29.8)	(2.50)	30
WBA	3.73	76.58	(4.8)	(0.17)	30

And of my share holdings.

sym	share price	net result %	net profit $	days held
AAPL	221.20	-1.2%	(2.76)	33
CHK	4.75	18.8%	0.75	33
FXI	39.87	-3.3%	(1.34)	33
SPXU	35.81	-11.7%	(4.75)	155
TSLA	277.23	-9.1%	(27.76)	16
VNQI	53.85	-5.2%	(2.96)	34

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

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International Business Machines Corp. (IBM)

Update 11/1/2018: I’ve exited IBM, 15 days before expiration, because of a large loss. The stock dropped after earnings and kept on dropping, and I saw no hope for recovery.

The cost of exitings was a $10.10 debit, or a $331 loss per contract, with shares a $115.80, down $28.00 from entry.

Shares declined by 19.5% over 16 days, or a -444% annual rate. The options position produced a 32.8% loss for a -748% annual rate.

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I have entered a short vertical spread on !S, using options that trade for the last time 31 days hence, on Nov. 16. The premium is a $6.79 credit per contract/share and the stock at the time of entry was priced at $143.80.

I decided to enter the trade based on the proximity of an earnings announce, on Wednesday, Oct. 17, before the opening bell.

The profit zone for this position is between $151.79 on the upside and $141.79 on the downside.

Read More »

11:50 a.m. New York time

I have entered a short iron fly options spread on IBM.

10:45 a.m. New York time

In the earnings season, the techs are starting to publish. I’m most interested in analyzing IBM for trading today.

Another tech, NFLX, is also on the calendar, but at $335 or so per share, it lacks granularity in sizing the trade, so I’m passing on it. The other prospective earnings plays on the calendar are ABT, CREE, CSX, UAL and MTG.

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Today’s Book

Volatility: Practical Options Theory by Adam S. Iqbal

If there is a theme that dominates my trading, surely it is volatility. Indeed,, blindfold me so I can’t look at a single chart or read a single quarterly report. Plug up my ears so that I can’t hear a single market commentary. Only let me know the volatility implied by the options on a stock, and how that volatility relates to its history over the past year, and I can tell you in an instant whether I want to look at it more closely at a possible trade.

The author of Volatility, Adam S. Iqbal, is a managing director and global head of FX exotics and correlation at Goldman Sachs. His book takes a deep dive into options theory, the assumptions that underly it, and ways to apply theory in the real world. I place great value on intuition in trading, and one of Iqbal’s goals for this book is to discuss ways of developing a more accurate intuition in making decisions when the clock is ticking.

In my world of options trading, volatility is pretty much the game. Volatility the book provides the strategic foundation for winning at that game.

More about the book

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The status of my options positions.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	2.98	69.54	13.6	0.47	31
EWZ	1.01	39.15	(17.4)	(0.15)	31
JNJ	5.40	136.89	3.6	0.20	31
LEN	3.43	44.15	(6.2)	(0.20)	31
SPY	3.72	277.32	14.7	0.64	31
STZ	10.63	226.04	(26.5)	(2.23)	31
WBA	3.48	74.95	2.2	0.08	31

sym	share price	net result %	net profit $	days held
AAPL	217.62	-2.8%	(6.34)	32
CHK	4.80	20.0%	0.80	32
FXI	39.92	-3.1%	(1.29)	32
SPXU	36.77	-9.3%	(3.79)	154
TSLA	268.98	-11.8%	(36.01)	15
VNQI	53.55	-5.7%	(3.26)	33

By Tim Bovee, Portland, Oregon, Oct. 16, 2018

Read More »

Johnson & Johnson (JNJ)

Update 11/7/2018: I have exited JNJ for a debit of $847 per contract, a loss of $287 per contract, with shares at $144.18 each up $9.32 from entry.

Shares rose by 6.9% over 23 days, or a +110% annual rate. The optoins position produced a 33.9% loss for a -538% annual rate.

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I have entered a short iron fly spread on JNJ, using options that trade for the last time 32 days hence, on Nov 16. The premium is a $5.60 credit and the stock at the time of entry was priced at $134.86.

I made the decision to enter the trade in my account to coincides with an earnings announcement on Tuesday, Oct. 16, before the opening bell.

The profit zone for this position is between $140.50 on the upside and $130.80 on the downside.

Read More »

11:10 a.m. New York time

I have entered a short iron fly position on JNJ.

I’ve decided to pass on UNH, reserving funds for later in the earnings season.

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Today’s Book

Big Debt Crisis by Ray Dalio

I first encountered hedge fund manager Ray Dalio at the outset of the Great Recession a decade ago, in the form of his 30-minute YouTube video How the Economic Machine Works. In it, Dalio presents an Economics 101 course in how economic downturns happen, the small ones of the business cycle and the big ones of an excess of debt.

It’s a marvelous piece of work, and upon watching it, as our world crumbled about us, I christened him to myself as “The Great Simplifier”, a tribute to his easy to understand style of presentation.

Dalio has returned to his economics tutoring, this time in book form. Big Debt Crisis elaborates on the theories he illustrated so long ago in the video. I’m reading the book now, and find it to be a masterwork of great clarity. From Dalio, of course, I would expect no less. I recommend the book to all traders. Like smart fish, we need to understand the water in which we swim. Dalio provides us with a map.

More about the book

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10 a.m. New York time

I have  selection of five potential earnings plays on my desk as I greet the dawn, and have selected two as my best prospects: JNJ for pharmaceuticals and UNH for health insurance and other services.

I’m going with JNJ, since it has the higher implied volatility rank, 67. UNH is also acceptable, and I’ll consider adding it but have not yet made a decision.

The remaining three possibilities are all financials, BLK, GS and MS, which I am passing on without further analysis, having already added financials to my risks this earnings season.

Here’s how my options positions are doing this morning:

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	3.26	70.35	5.5	0.19	32
EWZ	0.85	38.31	1.2	0.01	32
LEN	3.58	41.22	(10.8)	(0.35)	32
SPY	3.67	275.74	15.8	0.69	32
STZ	9.93	223.54	(18.2)	(1.53)	32
WBA	3.45	74.20	3.1	0.11	32

And of my shares positions:

sym	share price	net result %	net profit $	days held
AAPL	220.12	-1.7%	(3.84)	31
CHK	4.48	12.0%	0.48	31
FXI	35.54	-13.8%	(5.67)	31
SPXU	37.37	-7.9%	(3.19)	153
TSLA	261.12	-14.4%	(43.87)	14
VNQI	52.84	-7.0%	(3.97)	32

By Tim Bovee, Portland, Oregon, Oct. 15, 2018

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This week gets back to the basics, what we make, what we buy and where we’re living as we engage in those fundamental activities of life.

The industrial production  report will be published Tuesday at 10 a.m. New York time, preceded by retail sales on Monday at 8:30 a.m.

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Today’s Book

The Psychology of Investing

by John R. Nofsinger

What is the secret of successful trading? Lots of money? The best business data? The right technical trading indicators and techniques? As someone who has spent 36 years actively trading the stock and options markets, my answer would be, “None of the above”. 

All of those external tools, in my opinion, are irrelevant to successful trading. Rather, the secret of successful trading lies within. It is the mindset, the psychology, that makes the difference between success and failure in the markets. (Plus, I’d be remiss not to add, on occasion pure dumb luck.)

For insight, Nofsinger turns to the tools of experimental finance. His study of what happens in the brain as we trade can’t do much for the luck part of the equation, but he has much to say about the credits and debits that our built-in human ways of thinking bring to our trading results.

More about the book

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Housing rounds out the triplicity with three reports of its own, housing starts, a leading indicator, on Wednesday at 8:30 a.m. New York time, existing home sales — the larger part of the market — on Friday at 10 a.m., and the less-watched National Association of Homebuilders housing market index on Tuesday at 1 a.m.

The Federal Open Market Committee minutes for the Sept. 26 meeting will be published on Wednesday at 2 p.m. The committee at that meeting raised the federal funds rate by 25 basis points to a target range of 2% to 2-1/4%, and also released members’ economic forecasts.

Read More »