I have declined to take a a short iron condor spread on EWW, using options that trade for the last time 51 days hence, on Nov. 16. The hypothetical premium is a $1.01 credit and the stock at the time of entry was priced at $51.12. Since I passed on the trade, of course, neither money nor contracts changed hands.
The trade was proposed by a member of the TastyWorks team, Fauzia, who skewed her position sharply to the downside. That skew provided more protection against a decline and increased the premium, but at a high cost in risk.
It’s that high risk relative reward that persuaded me not to take the trade. I’m not at all criticizing the trade — it’s an excellent way to handle uncertainty — but it moves beyond my own willingness to accept risk. In my book a key element of trading success is knowing your risk limits and knowing when you’re willing to move beyond them.
The profit zone for this position is between $54.01 on the upside and $40.01 on the downside.
I’ve passed on a potential trade on EWW after a full analysis.
10:35 a.m. New York time
I have no more earnings plays in sight this week, so I’ll turn my attention to longer-term positions. Today I’ll take a look at EWW, a high IV rank exchange traded fund that tracks the Mexican stock market. It’s not my trading idea but was posted by Fauzia, a member of the TastyTrade team.
Of my present options positions, one — GNRC — is nearing the point where I manage it — either exit or roll it forward. For iron condors like GNRC and directional spreads, the management point is 50% of maximum potential profit. For iron flies, which I use for earnings plays, I manage 25% of maximum potential profit.
Update 10/1/2018: I have exited short iron fly position on KMX for a $2.60 debit, $0.87 below the $3.47 credit at entry. That’s 25% of maximum potential profit, my goal for iron fly positions. Shares stood at $74.85 at the time I exited.
KMX was dropping rapidly the day I entered, and stayed near the closing low of that day thereafter. The share price at exit was 38 cents above the low end of the profit range.
Shares declined by 1.2% over six days, or a -71% annual rate. The options position produced a 33.5% return for a +2,036% annual rate.
I have entered a short iron fly spread on KMX, using options that trade for the last time 24 days hence, on Oct. 19. The premium is a $3.47 credit and the stock at the time of entry was priced at $75.74.
I made the decision to enter the trade in my account because of proximity to an earnings announcement, on Sept. 26 before the opening bell..
The profit zone for this position is between $79.47 on the upside and $74.47 on the downside.
Update Oct. 1, 2018: I exited NKE for a $2.45 debit, a $0.64 profit on the options, with shares trading at $83.43, which $1.08 below the entry price. The share close $1.05 below the short calls strike price.
Implied volatility was 22% when i exited, eight points below its entry level.
I exited at 20.7% of maximum profit. That was below my target, 25% of max, due to difficulties on my part in correctly using the TastyWorksbrokerage interface.
Shares declined by 1.3% over seven days, or a -67% annual rate. The options position produced a 26.1% return for a +1,362% annual rate.
I have entered a short iron fly spread on NKE, using options that trade for the last time 24 days hence, on Oct. 19. The premium is a $3.09 credit and the stock at the time of entry was priced at $84.51.
I made the decision to enter the trade in my account based on proximity to an earnings announcement, on Sept. 25 after the closing bell..
The profit zone for this position is between $87.59 on the upside and $83.59 on the downside.
Update 10/12/2018: I have exited my short iron fly position on JBL for a loss, a week before the options expired.
The stock gapped down at the opening after earnings were published by nearly $3, immediately pushing the price below the profitable zone, and the decline continued unabated though the nearly three weeks I held the position.
The debit on the options was $2.05, for a loss of $0.68 per contract/share, with shares trading at $23.63.
Shares declined by 20.6% over the 18 day holding period, or a -417% annual rate. The options position produced a -33.2% loss for a -673% annual rate.
I have entered a short iron fly spread on JBL, using options that trade for the last time 25 days hence, on Oct. 19. The premium is a $1.37 credit and the stock at the time of entry was priced at $29.75.
I made the decision to enter the trade in my account based on an earnings announcement. JBL publishes earnings on Sept. 25 before the opening bell.
The profit zone for this position is between $31.34 on the upside and $29.34 on the downside.
The Federal Open Market Committee, the money policy arm of the Federal Reserve, completes a two-day meeting on Wednesday, releasing a policy statement and member forecasts at 2 p.m. New York time. Fed Chairman Jerome Powell holds a news conference at 2:30 p.m.
The FOMC is seeking a course between Scylla and Charybdis, between increasing interest rates at a higher pace in the face of tight job markets and the consequent expectation of rising wages and prices, and keeping the pace slow or even lowering it, and a yield curve that is increasingly being seen as a harbinger of economic downturn. Reuters on Friday published a report outlining the dilemma regulators face.
Since December 2015 the FOMC has raised its target for the federal funds rate seven times, 25 basis points at a time, to the present range of 1.75% to 2%. This year’s two increases have come down to one per quarter.
An increase of more than 25 basis points would be a market-rocking signal, as would any indication that regulators intend more than one increasing after September. That’s assuming, of course, that the conventional wisdom is correct and Wednesday’s announcement raises rates.
As the last month of the quarter nears its end, the third iteration of the gross domestic product hits the markets, on Thursday at 8:30 a.m. New York time. It will impact the markets if there’s a significant change from the second revision published last month. It’s not likely, so the report will probably be more of a confirmation than new news.
The news will come from a a series of more tightly focused reports: Durable goods orders and international trade in goods, each on Thursday, and personal income and outlays, on Friday, all at 8:30 a.m.
We’ll also get a look at housing in my favorite report for the sector, the Case-Shiller home price index on Tuesday at 9 a.m. It provides prices for 20 metro areas, as a well as a national summary, providing a useful degree of detail in assessing real estate markets. Two other housing sector reports will be published: New home sales on Wednesday and the pending home sales index on Thursday, each at 10 a.m.
Fed Chair Powell will deliver brief remarks on the U.S. economy at Rhode Island Business Leaders Day sponsored by Sen. Jack Reed, D-R.I., on Thursday at 4:30 p.m. in Washington.
Well, that was fast. AAPL dropped below my $219.15 trigger, and I have exited for $3.92 per share, a very slight loss. I shall update the analysis with results shortly.
10:20 a.m. New York time
My options on AAPL expire on Friday a week from today. The position is slightly profitable. Very near term support is at $219.15. If the price falls below that level, then I exit immediately. If it stays above, then I shall exit on Monday.
Here is where my options positions stand this morning:
Update Oct. 1, 2018: I exited MU for a $0.52 profit on the options, with shares at exit priced a $46.29, two cents below the entry price. The exit was well within the profit zone, $2.29 above the short put strike price.
Implied volatility was 42% when I exited, 14 points below its entry level.
I exited at 51.5% of maximum potential profit, close to my target of 50% of max.
Shares declined by 0.04% over 12 days, or a -1.3% annual rate. The optoins position produced a +106.1% return for a +3,228% annual rate.
I have entered a short iron condor non-directional spread on MU, using options that trade for the last time 29 days hence, on Oct. 19. The premium is a $1.01 credit and the stock at the time of entry was priced at $46.31.
I made the decision to enter the trade in my account based on high implied volatility just prior to an earnings announcement. MU publishes earnings on Sept. 20 after the closing bell.
The profit zone for this position is between $58.51 on the upside and $42.01 on the downside.
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