3:25 p.m. New York time

That’s a wrap for the week. I shall my discussion of economic reporting, The Week Ahead, on Saturday.

3:05 p.m. New York time

HD‘s implied volatility rank rose a bit, to 49%, and so I fudged my normal 50% or greater rule and entered the trade, for an excellent risk/reward ratio.

9:50 a.m. New York time

My single potential earnings play for Friday is HD. It has a high market capitalization, but its implied volatility rank is low, in the 4th quintile at 44%. With the IV rate under 50%, I’m not interested and plan no analysis or trade.

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Today’s Book

Liar’s Poker

by Michael Lewis

This 1989 book is still on the best-seller list. And no wonder. The author, Michael Lewis, has a knack for diving past the nonsensical facades to the heart of the matter, be it bonds or baseball. In the case of Liar’s Poker, it’s the inside story of selling bonds — Lewis’ first step in the journey from bond salesman to best-selling author. When I first read it, it was a book that I couldn’t put down.

Since then, he has brought his perspective to a boat-load of Lewis’ latest book, The Fifth Risk, takes on the operations of government. It came out in early October and now stands at the top of the Economics and Public Affairs categories on Amazon.

More about the book

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Current quotes for my options positions:

sym	option debit	share price	beyond profit zone	curr % max profit	net prft/shr $	option days left
ATVI	6.25	54.12	low	(1.5)	(0.09)	42
QCOM	4.80	57.71	low	(8.1)	(0.36)	42
SPY	5.72	278.32		(35.5)	(1.50)	42

By Tim Bovee, Portland, Oregon, Nov. 9, 2018

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Activision Blizzard Inc. (ATVI)

I have entered a short iron fly spread on ATVI, using options that trade for the last time 43 days hence, on Dec. 21. The premium is a $6.16 credit and the stock at the time of entry was priced at $63.01.

I entered the trade to coincide with an earnings announcement today, Nov. 8, after the closing bell.

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

Read More »

2:45 p.m. New York time

My other prospective earnings play, DIS, saw its IV rank drop sharply during the day, down to 47%. That’s too low for my taste, so I’ll settle for the one trade, ATVI, for today.

2:30 p.m. New York time

I’ve entered a short iron fly position on ATVI.

1:45 p.m. New York time

I’ve updated the analyses with results for the three positions on exited: EWZ, PM and UPS.

I’ve been delaying entry of new positions until after the Federal Open Market Committee announcement due at 2 p.m. New York time.

10:30 a.m. New York time

I’ve exited EWZ for a profit, eight days prior to expiration.

10:25 a.m. New York time

I’ve exited PM for a loss, eight days prior to expiration.

9:55 a.m. New York time

I have exited UPS for a profit and shall update the analysis with results.

9:50 a.m. New York time

I’m looking at two prospective earning plays today. ATVI has the highest IV rank, in the 1st quintile (81-100), but comes in second in market capitalization. DIS has an IV rank in the 2nd quintile (61-80) and has the higher market cap. I’ll choose later in the day.

I have two exits planned: EWZ and PM, which expire next week. UPS — a Dec. 21 expiration — is around 25% of maximum potential profit, and I shall exit if I can get a fill.

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Today’s Book

The 5 AM Club

Own Your Morning, Elevate Your Life

by Robin Sharma

True confession: I live on the West Coast of the United States, and the opening bell of the markets rings in my ears at 6:30 in the morning. When I haven’t prepped the day before, I end up with 5 a.m. days.

Performance expert Robin Sharma in this book describes his morning routine designed to produce health and serenity.

As a trader, health and serenity describe my greatest needs, after profit. Sharma says he has answer to those needs.

More about the book

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The status of my current options positions.

sym	option debit	share price	beyond profit zone	curr % max profit	net prft/shr $	option days left
EWZ	0.89	40.30		(3.5)	(0.03)	8
PM	3.85	89.55	high	(12.2)	(0.42)	8
QCOM	4.43	89.31	high	0.2	0.01	43
SPY	6.25	280.62	high	(48.1)	(2.03)	43
UPS	6.10	111.27		25.6	2.10	43

By Tim Bovee, Portland, Oregon, Nov. 8, 2018

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Qualcomm Inc. (QCOM)

I have entered a short iron fly spread on QCOM, using options that trade for the last time 44 days hence, on Dec. 21. The premium is a $4.44 credit and the stock at the time of entry was priced at $62.61.

I entered the trade because it coincides with an earnings announcement today, Nov. 7, after the closing bell.

The profit zone for this position is between $66.94 on the upside and $59.44 on the downside.

Read More »

2:40 p.m. New York time

I’ve updated with results the analyses of all of the positions I exited: HON, MSFT, JNJ, MCD and WBA.

2:25 p.m. New York time

I’ve entered a short iron fly position on QCOM.

11:20 a.m. New York time

Three more exits: JNJ, MCD and WBA.

10:25 a.m. New York time

Two exits: HON and MSFT. I’ll update the analyses later with results.

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Today’s Book

The Return of High Inflation: Risks, Myths and Opportunities,

by Wolfgang H. Hammes

Preternaturally low inflation has been with us for a decade, and memories are fading of the long years of rapidly rising, sometimes runaway, prices.. As the Federal Reserve raises interest rates in defense against inflation, many voices can be heard muttering, “Inflation? What’s to worry? Don’t bring back the recession.”. Hammes argues that the risk of inflation is real, and in this well researched book provides a map of the world we’ll be trading in when (not if) inflation once again returns.

More about the book

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10:15 a.m. New York time

I’m looking at several prospective earnings plays today. It’s a choice from a fairly poor group. More on that later, but first, a change in my exit rules that may make it necessary to loosen by rules on acceptable trades.

Read More »

12:50 p.m. New York time

I’m look at the five top-quintile prospects for earnings plays, using these criteria: 1) The higher the implied volatility rank, the better; 2) the higher the market capitalization, the better; 3) a chart running contrary to the S&P 500, i.e.,  above the 12-month moving average is better than below.

DVN and KORS are the leaders for criteria one and two, but they fail on criteria three. The next one down, ETSY, meets all three criteria, although with a market cap of $5 billion, it’s not as high as I like. I’m going to give in to my inclination pass on it, preserving funds for larger companies announcing later.

11:40 a.m. New York time

I’ve updated my GILD analysis with results.

10:40 a.m. New York time

A exit order on GILD was filled moments ago. It’s somewhat under my normal management point, 25% of maximum profit, but since I expect a sharp market decline, best in my mind to take the profit and run.

I have eight possible earnings plays on my desk this morning, with five having top quintile implied volatility ranks.

I haven’t made decisions yet. The most liquid have market caps in the 10s of billions of dollars rather than the hundreds of billions, which is a drawback.

Here’s the list:

1st quintile (81-100): DVN, ETSY, GRPN, KORS and LC

2nd quintile (61-80): KTOS and ODP

3rd quintile: FTR

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Today’s Book

The Signal and the Noise

Why So Many Predictions Fail — but Some Don’t

by Nate Silver

Nate Silver got his start predicting sports, moved on to competitive poker and finally became a nationally recognized name when he applied his considerable skills to the predicting elections.

Today is election day in the United States, so what better time to open Silver’s 2012 book on statistics and prediction? I found the book to be fascinating the first time I read it, and even more so the second time.

I’m a trader, and part of my living comes from my ability to understand statistics and to predict what the market will do within the confines of those numbers. Although not focused specifically on the markets, this book provides an excellent gateway to Silver’s methods, and for me, part of the attraction has been to try to link in my own mind his techniques of analyzing sports and politics and my techniques for assessing trades.

A good read that has been useful in focusing my mind on the statistical aspect of trading. I highly recommend it.

More about the book

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The status of my current options positions.

sym	option debit	share price	beyond profit zone	curr % max profit	net prft/shr $	option days left
EWZ	1.30	40.54		(51.2)	(0.44)	10
GILD (exited)	5.15	70.25		16.7	1.03	45
HON	6.34	148.85		0.0	0.00	10
JNJ	6.97	141.91	high	(24.5)	(1.37)	10
MCD	8.97	179.76	high	(44.7)	(2.77)	10
MSFT	7.64	107.98		11.2	0.96	45
PM	3.65	88.94	high	(6.4)	(0.22)	10
SPY	4.47	274.32		(5.9)	(0.25)	45
UPS	8.34	107.65		(1.7)	(0.14)	45
WBA	4.81	79.95	high	(35.1)	(1.25)	10

And of my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	203.41	-9.2%	(20.55)	53
CHK	3.74	-6.6%	(0.27)	53
FXI	41.11	-0.2%	(0.10)	53
SPXU	37.60	-7.3%	(2.96)	175
TSLA	345.79	13.4%	40.80	36

By Tim Bovee, Portland, Oregon, Nov. 6, 2018

Read More »

10:15 a.m. New York time

I have no earnings plays that I care to take from today’s seven prospects. I’m looking for stocks with market caps above $100 billion (although I’ll fudge that figure) and implied volatility ranks in the 1st quintile (81-100). None of the seven fulfills both requirements, and so I shall reject them all.

The prospects are:

1st quintile (81-100): OAS, GLUU and HL

2nd quintile: CVS and LLY

3rd quintile: AES and ATRS

LLY is the sole prospect with a qualifying market cap, and its IV rank is in the 70s.

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Today’s Book

Thinking Fast and Slow

By Daniel Kahneman

This 2012 best-seller contains a great truth that is important to traders like us. Trading is psychology. How you think determines what  trades you make. If a trader treats the markets as a rational machine, to be understood in detail, then you will tend toward a certain sort of analysis — perhaps looking at the underlying business and finances of a company. That would be Daniel Kahneman’s slow thinking. If we rely on intuition, on the feel of of a trade, our analysis will look quite different — perhaps the patterns on a chart that engage our marvelous human pattern recognition systems. The ancient Greeks lived by the aphorism, “Know yourself”. Traders today will profit if they live by those words as well.

More about the book

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The status of my current options positions.

sym	option debit	share price	beyond profit zone	curr % max profit	net prft/shr $	option days left
EWZ	1.60	41.35	high	(86.0)	(0.74)	11
GILD	5.30	69.17		14.2	0.88	46
HON	5.08	147.17	low	19.9	1.26	11
JNJ	7.01	142.09	high	(25.2)	(1.41)	11
MCD	8.09	179.24	high	(30.5)	(1.89)	11
MSFT	7.45	106.43		13.4	1.15	46
PM	3.89	89.60	high	(13.4)	(0.46)	11
SPY	3.91	271.69		7.3	0.31	46
UPS	8.90	106.36	low	(8.5)	(0.70)	46
WBA	4.60	79.87	high	(29.2)	(1.04)	11

And of my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	199.80	-10.8%	(24.17)	52
CHK	3.80	-5.0%	(0.20)	52
FXI	40.98	-0.6%	(0.23)	52
SPXU	38.70	-4.6%	(1.86)	174
TSLA	331.25	8.6%	26.26	35

By Tim Bovee, Portland, Oregon, Nov. 5, 2018

Read More »

The Federal Open Market Committee meets beginning Wednesday to make a another decision about interest rates. The meeting concludes on Thursday at 2 p.m. New York time with an announcement of the decision. No news conference is scheduled.

The Fed raised rates once each in 2015 and 2016, three times in 2017 and so far, three times in 2018.

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Today’s Book

Can American Capitalism Survive?

Why Greed Is Not Good, Opportunity Is Not Equal, and Fairness Won’t Make Us Poor

by Steven Pearlstein

Washington Post business columnist Steven Pearlstein takes on what I consider to be the challenge of our age: Can capitalism provide a better life for us all?

Now more than ever people are questioning the vast theory and system that underlies our lives, amid increasing inequality and the resulting political turmoil.

Pealstein gives a view of what has happened, why it has happened, and what specifically must be done to fix it. and, in the process, preserve the dynamic system that has created a world of increasing wealth and freedom.

More about the book

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There has not yet been a November increase since the present series began, so I won’t read much into it if the Fed decides not to raise at this meeting. The final meeting of the year, Dec. 18-19, will have a news conference by the Federal Reserve chair and release of new forecasts, and that would be the most likely time to announce a fourth increase for the year.

A decision to raise in November, on the other hand, would be a very big deal, with a market response and without a doubt a very loud response from the White House.

One report on the state of prices is due out during the week. The producer price index (final demand) will be published on Friday at 8:30 a.m.

Fed Vice Chairman for Supervision Randal Quarles will speak on future financial regulation at the Brookings Institution in Washington on Friday at 9:05 a.m. The event will be steamed live here.

The week ends with a three-day weekend marking the Veterans Day holiday in the United Stats on Monday, Nov. 12.

Read More »

3:40 p.m. New York time

That wraps of trading for what proved to be a busy week. I’ll post my weekly discussion of economic reporting, The Week Ahead, on Saturday.

11:15 a.m. New York time

I have updated the STZ analysis with results.

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Today’s Book

Market Timing with Moving Averages

The Anatomy and Performance of Trading Rules

by Valeriy Zakamulin

Late Thursday evening I posted to Private Trader an essay on a significant moving average signal on the S&P 500. MAs (as we call them in the biz) are a fascinating tool, with a very long history dating well back into the era of manual calculation.

Zakamulin is a professor of finance at the University of Agder School of Business and Law, located in Norway. In his deep dive into the world of moving averages, he provides a foundation of rule-based market timing. 

More about the book

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10 a.m. New York time

I have exited STZ. At this time I anticipate no other trades today.

9:50 a.m. New York time

I intend to exit STZ today to avoid an ex-dividend on Monday, which increases the chance of assignment.

The one prospective trade coinciding with earnings PCG. With IV rank in the 3rd quintile, it’s not a serious choice, and I am laying it aside.

I posted an essay last night about a bear signal from a very slow-moving indicator that I’ve written about before: The I Hate Stocks trading indicator. It can be read here.

The status of my current options positions.

sym	option debit	share price	beyond profit zone	curr % max profit	net prft/shr $	option days left
EWZ	1.72	41.81	high	(100.0)	(0.86)	14
GILD	5.42	70.59		12.3	0.76	49
HON	5.99	145.35	low	5.5	0.35	14
JNJ	6.35	140.99	high	(13.4)	(0.75)	14
MCD	7.48	174.51	high	(20.6)	(1.28)	14
MSFT	7.44	107.13		13.5	1.16	49
PM	3.44	87.97		(0.3)	(0.01)	14
STZ	8.63	275.10	high	(2.7)	(0.23)	14
SPY	4.68	201.62		(10.9)	(0.46)	49
UPS	8.27	106.84		(0.9)	(0.07)	49
WBA	4.67	79.92	high	(31.2)	(1.11)	14

And of my shares positions.

sym	share price	net result %	net profit $	days held
AAPL	213.33	-4.7%	(10.63)	49
CHK	3.64	-9.0%	(0.36)	49
FXI	41.74	1.3%	0.53	49
SPXU	37.23	-8.2%	(3.33)	171
TSLA	345.72	13.4%	40.73	32

By Tim Bovee, Portland, Oregon, Nov. 2, 2018

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In 2013, I published an essay called “The I Hate Stocks Trading Plan“. It was aimed at my many friends who are buy-and-hold traders. Whatever the market does, they ride it up, they ride it down, they ride it back up, and they ride it back down again.

(Click on the title above to read it, or click here.)

That’s a lot of potential profit being chewed up by the bear markets.

The “I Hate Stocks” plan, as I presented it, is extremely conservative. It relies on the 12-month moving average — that’s right, “month”. The chart under this plan is checked once a month, on the last day. If it close above the 12-month moving average, then it is in a bull phase. If below, then it is in a bear phase.

It doesn’t happen often, but when it does, traders with skin in the game do well to take notice.

By this measure, the S&P 500 and it’s top index fund, SPY, entered signaled a bear market at the end of October. Here’s what it looks like on a five-year chart, where each bar covers a month. The yellow line is the 12-month simple moving average (“simple” means, no weighting in favor of the newer readings).

The 12-month moving average method won’t have you jumping in and out like a demented jackrabbit. It will, like all signals, occasionally give false alarms. But generally, a signal means that we’re in for a change in trend that will be with us for awhile — months, and maybe years.

The last time the S&P 500 gave such a bear signal was in August 2015. It moved back into a bull signal in March 2016. In both cases, the signal was read on the last day of the month.

That was a relatively short correction, a bit more than half a year. There’s no guarantee that they’ll all be that short.

The bear signal of late 2008 kicked off a bear market that lasted until mid-2009, and the market took years to really get going. It didn’t return to its prior levels until 2013, five years later.

Here’s a 20-year monthly chart of the S&P 500, again with monthly bars.

Note that under this plan, the trader won’t avoid all of the decline, but will escape most of it. And the trader will won’t catch all of rise, but will profit from most of it. Like all signals, the 12-month moving average is a lagging indicator. But even with the lag, used properly it increases profits.

Full disclosure: I don’t use the “I Hate Stocks Trading Plan” in my own trading. Truth is, I love stocks, especially in the form of their options, a derivative. Using stock options, I can make money in a downtrending market just as handily as I can make it in an uptrending market. And I trade often, almost every week, sometimes almost every day.

But when there’s a signal of this magnitude on the slow-moving 12-month moving average, I take notice. And the signal tells me to be extra-bearish and extra-cautious in my trading.

By Tim Bovee, Portland, Oregon, Nov. 1, 2018

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