GDX Analysis

VanEck Vectors Gold Miners ETF  (GDX)

I have entered a short iron condor spread on GDX, using options that trade for the last time 42 days hence, on September 20. The premium is a $0.45 credit and the stock at the time of entry was priced at $29.63

The profit zone for this position is between $34.45 on the upside and $25.45 on the downside.

The implied volatility rank (IVR) stands at 99.8%.

Premium: $0.45 Expire OTM
GDX-iron condor Strike Odds Delta
Long 36.00 93.2% 9
Break-even 34.45 89.9% 12.5
Short 34.00 86.6% 16
Puts
Short 27.00 77.2% 19
Break-even 25.45 84.5% 13
Long 25.00 91.8% 7

The premium is 22.5% of the width of the position’s wings.

The profit zone covers a 16.3% move to the upside and a 16.4% move to the downside of the entry price, for total coverage of 32.7%

The risk/reward ratio is 3.4:1, with maximum risk of $155 and maximum reward of $45 per contract.

By Tim Bovee, Portland, Oregon, August 9, 2019

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QQQ Analysis

Invesco Powershares QQQ (QQQ)

Update 8/23/2019: My short iron condor position on QQQ reached half of maximum potential profit, and I exit for a $0.93 debit, with shares trading at $187.36, up $1.56 from their price at entry. The profit per contract was $93.00.

The stock traced a sideways trend during my holding period. It fell sharply on the day I exited, following a tweet by Trump, but only after I had exited. The market response to the president’s tweet reduced the position’s profit to well below 50% of its maximum potential. It was one of those fortuitous events of timing that never fails to put a smile on a trader’s face. The implied volatility rank at exit was 27.6%, down 3.6 percentage points from the entry level.

Shares rose by 0.8% over 14 days, or a +22% annual rate. The options position produced a 100.0% return for a +2,607% annual rate.


I have entered a short iron condor spread on QQQ, using options that trade for the last time 42 days hence, on September 20. The premium is a $1.86 credit and the stock at the time of entry was priced at $185.78.

The profit zone for this position is between $198.86 on the upside and $158.86 on the downside.

The implied volatility rank (IVR) stands at 31.2.

Premium: $1.86 Expire OTM
QQQ-iron condor Strike Odds Delta
Long 203.00 96.0% 5
Break-even 198.86 90.0% 10.5
Short 197.00 84.0% 16
Puts
Short 171.00 81.0% 17
Break-even 158.86 87.0% 11.5
Long 157.00 93.0% 6

The premium is 18.6% of the width of the position’s wings.

The profit zone covers a 7.0% move to the upside and a 16.9% move to the downside of the entry price, for total coverage of 24.0%

The risk/reward ratio is 4.4:1, or $814 in maximum risk to $186 in maximum reward.

By Tim Bovee, Portland, Oregon, August 9, 2019

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Live: Friday, Aug. 9, 2019

1 p.m. New York time

I’ve entered a long iron condor position on GDX and have posted the analysis.

10:45 a.m. New York time

My short iron condor order on QQQ has been filled, and I have posted the analysis.

10:25 a.m. New York time

I’ve placed a short iron condor order on QQQ. My asking price is $1.85.

9:50 a.m. New York time

I’ve added IYR to my managed shares after a buy signal from the Fisher Transform. The confirmation was a visual inspection of the chart trend. One slot remains empty. Here’s the portfolio:

sym slot # price $ sector
GDXJ 1 40.79 metals
SLV 2 15.88 metals
ARKW 3 50.11 technology-internet
IYR 4 91.51 real estate

By Tim Bovee, Portland, Oregon, August 9, 2019

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Live: Thursday, Aug. 8, 2019

4:40 p.m. New York time

My order on EEM expired unfilled.

10:05 a.m. New York time

I’ve placed an order for a short iron condor on EEM. My asking price is $0.55. No fill yet.

9:35 a.m. New York time

I’ve added ARKW to my managed shares portfolio, for an entry price of $50.11. The Fisher Transform gave a buy signal yesterday, and the trend is confirmed by a Bullish Engulfing candlestick pattern.

ARKW20190808
ARKW bullish engulfing pattern, daily bars at the Aug. 7, 2019 close

 

 

This brings my holdings back to three as the markets settle after the large drop earlier in the week.

sym slot # price $ sector
GDXJ 1 40.79 metals
SLV 2 15.88 metals
ARKW 3 50.11 technology-internet
(empty) 4
(empty) 5

I declined 11 Fisher Transform buy signals from Wednesday because they lacked trend confirmation. They are ACWX, BBJP, EIDO, EWC, EWJ, EWP, EWQ, EWT, XHB, XLU and XLY.

By Tim Bovee, Portland, Oregon, August 8, 2019

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SPY Analysis

SPDR S&P 500 ETF (SPY)

I have entered a short iron condor spread on SPY, using options that trade for the last time 44 days hence, on September 20. The premium is a $1.52 credit and the stock at the time of entry was priced at $284.78.

The profit zone for this position is between $301.52 on the upside and $251.52 on the downside.

The implied volatility rank (IVR) stands at 65.6%.

Premium: $1.52 Expire OTM
SPY-iron condor Strike Odds Delta
Long 303.00 92.0% 9
Break-even 301.52 89.0% 11.5
Short 300.00 86.0% 14
Puts
Short 261.00 83.0% 14
Break-even 251.52 86.5% 11.5
Long 250.00 90.0% 9

The premium is 21.7% of the width of the position’s wings.

The risk/reward ratio is 3.6:1. Each contract carries $548 in maximum potential loss compared to $152 in maximum potential profit.

By Tim Bovee, Portland, Oregon, August 7, 2019

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Live: Wednesday, Aug. 7, 2019

12 p.m. New York time

I’ve posted the analysis of SPY.

11:55 p.m. New York time

I’ve entered a short iron condor position on SPY. Details to follow.

10:10 a.m. New York time

Metals are all that’s worth buying out of my managed shares pool. I added SLV to GDXJ, and I still have three empty slots.

sym slot # price $ sector
GDXJ 1 40.79 metals
SLV 2 15.88 metals
(empty) 3
(empty) 4
(empty) 5

One reason for the paucity of trades is my new rule requiring that the symbol be in an uptrend. At this point I’m using the gut-feel method — I know an uptrend when I see it — and will, if the opportunity presents itself, use such things as Japanese candlestick patterns to resolve ambiguities.

Only SLV qualified for a trade when trend was added to the mix. The buy signals rejected because of their trends were BRZU, DBA, EEM, EPI, EWH, EWM, EWW, EWZ and RSX. So clearly, at this moment, the trend requirement is quite limiting. In a future up market, the trend requirement won’t be limiting at all, since almost every sector will be trending upward. That makes the trend an invaluable tool because it ties my trade selections to the Zeitgeist of the markets. Or, as wise old traders with a liking for shibboleths habitually put it, “The trend is your friend.”

By Tim Bovee, Portland, Oregon, August 7, 2019

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IWM Analysis

iShares Russell 2000 ETF (IWM)

Update 8/20/2019My short iron condor position on IWM reached 50% of maximum potential profit, and I exited for a $0.90 debit — half the credit received at entry. Shares at exit were trading at $149.25, which is $1.12 above their level at entry.

IWM meandered in a sideways movement during the holding period, and that was reflected in the implied volatility rate, which fell by 19.8 points from the entry level to 29.0% at exit.

Shares rose by 0.8% over 14 days, or a +20% annual rate. The options position produced a 100.0% return for a +2,607% annual rate.


I have entered a short iron condor spread on IWM, using options that trade for the last time 45 days hence, on September 20. The premium is a $1.80 credit and the stock at the time of entry was priced at $148.13.

The profit zone for this position is between $156.80 on the upside and $126.80 on the downside.

The implied volatility rank (IVR) stands at 48.8.

In building the trade, I skewed it to provide a deeper profit zone to the downside.

Premium: $1.80 Expire OTM
IWM-iron condor Strike Odds Delta
Long 162.00 93.0% 7
Break-even 156.80 84.0% 16.5
Short 155.00 75.0% 26
Puts
Short 132.00 87.0% 12
Break-even 126.80 90.0% 9
Long 125.00 93.0% 6

The premium is 25.7% of the width of the position’s wings.

The risk/reward ratio is $520 to $180 per contract, or 2.9:1.

By Tim Bovee, Portland, Oregon, August 6, 2019

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Tuesday, Aug. 6, 2019

11:55 a.m. New York time

My IWM order has been filled. I’ve posted the analysis.

11:35 a.m. New York time

And — happy days! — it’s time to begin repopulating my short iron condor options positions. And what a good time it is! Implied volatility rankings on market-wide exchange traded funds has leapt to high levels from the IVR swamp of despond where they have languished for much of the year.

This round, the options expiring September 20, 2019, I shall focus on those market-wide ETFs. I’ve entered an order for the first, IWM, which tracks, the Russell 2000, but have not yet gotten a fill.

Today is 45 days prior to expiration, and I’ll be pacing my position entries over several days in order gain some time diversification.

I’m choosing that strategy because of a study discussed last month on the financial network TastyTrade, an outfit that does the most useful options trading studies that I’ve seen, ever. This study looks at outcomes by the category of underlying, and find that the broad market positions tend to do best. The discussion, broadcast July 16, can be watched here.

10:40 a.m. New York time

In yesterday’s post, I mused about whether there’s an improvement to my signaling method that would reduce the likelihood of whipsaws. Having slept on it, I’ve concluded that there’s really no metric that would help. All it would do is take one of the most sensitive yet whipsaw-avoidant signaling algorithms around, the Fisher Transform, and turn it into something less sensitive.

The reality is that whipsaws tend to happen when markets are changing trend, topping or bottoming. And that’s something where we all have a built-in algorithm. Our vision and brains together constitute one of the best visual pattern recognition systems around. We know a trending stock chart when we see it. We know topping and bottoming behavior when we see them.

So going forward I shall confirm the Fisher Transform buy signal by looking a the stock chart and judging whether the greater trend is in to the upside. If it is, then it’s a buy. EWM, for example, was giving a Fisher Transform buy signal this morning. But the chart shows a decline from July 10. True, the price moved higher today compared to yesterday, but as a wise mentor told me years ago, “One day does not a trend make.” Another mentor added, ” Right. It’s three days. It takes three takes to make a trend.” Well, whatever. Like you, I know a trend when I see it.

So I rejected EWM, despite the signal. Another signal was GDXJ, and it is clearly in an upward trend. I entered GDXJ for a debit of $40.96 per share. It is, presently, the only managed shares position I have, the rest having been shot down by sell signals over the last two days.

By Tim Bovee, Portland, Oregon, August 6, 2019

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Live: Monday, Aug. 5, 2019

2:20 p.m. New York time

By the rule book on Tuesday I’ll start entering my options positions that expire September 20. Tuesday is 45 days prior to expiration.

My managed shares positions had been reduced to one by Friday’s sell signals, executed this morning, and a sell signal this morning removed the last position from the board.

Sold are EWM, XBI, XHB and XOP, with these results:

  • EWM, bought $28.55 on Aug. 1, sold $27.95 on Aug.  5, $-0.60 loss. Shares declined by 2.1% over three days for a -256% annual rate.
  • XBI, bought $86.76 on July 31, sold $82.08 on Aug. 5, $-4.68. Shares declined by 5.4% over five days for a -394% annual rate.
  • XHB, bought $42.07 on Aug. 1, sold $40.31 on Aug. 5, $-1.76 loss. Shares declined by -4.2% over four days for a -382% annual rate.
  • XOP, bought $25.16 on July 31, sold $22.43 on Aug. 5, $-2.73 loss. Shares declined by 10.9% over five days for a -792% annual rate.

The positions prepped for entry were CORN, GLD and XLU, and I added FXE for the position vacated this morning.

But I’m passing on those trades for now, given the Sturm und Drang in the markets after China allowed its currency to weaken.

As the economist Paul Krugman tweeted this morning, “Trump’s latest tariffs may look like the world trade equivalent of the assassination of Franz Ferdinand — the event that tripped an uneasy situation into all-out trade war.” I mean, who wants to hold shares as the guns of August are rolling into place?

Speaking of Sturm und Drang, my early results with this experimental method have produced way more churn than I anticipated. Could be intrinsic to all markets. Could be an artifact of this time and these markets. I’ll use the time-out enforced by the heightening tariff war to think about ways to smooth the signaling.

By Tim Bovee, Portland, Oregon, August 5, 2019

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Live: Friday, Aug. 2, 2019

1:35 p.m. New York time

I’ve updated my thought experiment on hedged earnings plays with a day-after observation. See Thought Experiment: An IBM earnings play.

10:05 a.m. New York time

I exited my managed shares positions XLE and XLV after each received a sell signal. I had only one buy signal that I could reasonably use to fill a slot: EWM, which I entered for $28.55 a share.

XLE produced a 0.6% loss over two days, or a -115% annual rate. The price change was down 39 cents.

XLV produced a 1.1% loss over four days for a -103% annual rate, a decline of $1.04.

Here’s the lineup:

sym slot # price $ sector
(empty) 1 #N/A
EWM 2 28.55 intl-malaysia
XBI 3 86.76 biotech
XHB 4 42.07 real estate
XOP 5 25.16 energy

By Tim Bovee, Portland, Oregon, August 2, 2019

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