The Week Ahead: Durables, houses

 

Big ticket purchases and the housing sales will punctuate the trading week

Durable goods orders covers purchases with a useful life of three years or more. The statistics will be published on Friday at 8:30 a.m. New York time.

The housing sales data comes in two installments: Existing homes sales, the greater part of the market, on Wednesday and new home sales on Thursday, each at 10 a.m.

Also out during the week, the Purchasing Managers Institute composite flash report on Friday at 9:45 a.m.

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ORCL Analysis

Oracle Corp. (ORCL)

ORCL publishes earnings on Wednesday after the closing bell.

I shall use the APR series of options, which trades for the last time 37 days hence, on April 21.

Implied volatility stands at 20%, which is 1.8 times the VIX, a measure of the volatility of the S&P 500 index.

ORCL’s IV stands in the 36th percentile of its annual range and the 46th percentile of its most recent broad movement. Despite the fact that both metrics are below my standard, the 50th percentile, I’m proceeding with the analysis. IV is fluctuating within a narrow range and easily return to that level by the end of the day. In other words, I’m punting.

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DG Analysis

Dollar General Corp. (DG)

Update 3/21/2017: DG traded sideways for two trading days after earnings were published and then declined for two more. I exited at 22.2% of maximum potential profit, ending the trade’s short lifespan.

Shares declined by 1.0% over eight days, or a -58.9% annual rate. The options position produced a 28.6% yield on debit for a +1,738% annual rate.


 

DG publishes earnings on Thursday before the opening bell.

I shall use the APR series of options, which trades for the last time 37 days hence, on April 21.

Implied volatility stands at 33%, which is 2.9 times the VIX, a measure of the volatility of the S&P 500 index.

DG’s IV stands in the 71st percentile of its annual range and the 73rd percentile of its most recent broad movement.

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Live: Wednesday, March 15, 2017

3/15 – 1:15 p.m. New York time

I did my analyses and entry trades earlier than usual today. I shall be breaking away from the markets early to meet a commitment. The stocks analyzed are DG and ORCL. Earlier in the day I exited IONS for a profit.

I prefer to enter positions nearer to the closing bell, and especially on those days when the Federal Open Market Committee makes an announcement. I feel comfortable rushing it today because the markets have priced in a 95% chance that the fed will raise its target rate from 0.75% to 1%. Not much room for surprises.

The market’s pricing in of Fed action came from a tool posted by the derivatives markets company the CME Group.

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IEF Analysis (options diagonal)

iShares 7-10 Year Treasury Bond (IEF)

On March 13 I opened a shares position on IEF (see the analysis here), based on Elliott Wave analysis indications of a reversal to the upside. To multiply potential profits from the position, I am adding an call options play structured as a diagonal spread, a close substitute for the covered call stock-options combination.

I shall use the APR series of options for the short leg, which trades for the last time 38 days hence, on April 21, and the JUN series for the long leg, which ends trading 94 days from now, on June 16.

I’ve not often used this structure, so here are the rules I’ll be using, based on those prevalent at Tastry Trade, whose trading strategies are very similar to my own. The Tasty Trade description of diagonals can be found here. Here’s what I shall be looking at:

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SNAP Analysis

Snap Inc. (SNAP)

SNAP is in its ninth day of trading since its initial public offering, with the stock price showing the usual post-IPO instability.

Today is the third day that options have traded. The are quite liquid — no surprise for such a high profile offering — and today implied volatility is at the peak of the symbol’s short history and at a very high level compared to the the benchmark VIX.

I shall use the APR series of options, which trades for the last time 38 days hence, on April 21.

Implied volatility stands at 51%, which is 4.1 times the VIX, a measure of the volatility of the S&P 500 index.

SNAP’s IV stands in the 98th percentile its most recent broad movement.

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