Microsoft Corp. (MSFT)

Update 11/7/2018: I have exited MSFT for a debit of $828 per contract, $32 less than the $860 entry credit, with shares trading at $110.64, up $r.91 from entry.

Shares rose by 4.6% over 14 days, or a +121% annual rate. The options position produced a 3.8% return for a +101% annual rate.

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I have entered a short iron fly spread on MSFT, using options that trade for the last time 58 days hence, on Dec. 21. The premium is a $8.60 credit and the stock at the time of entry was priced at $105.73.

I entered the trade to coincide with an earnings announcement, today, Oct. 24, after the closing bell.

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

Read More »

11:50 a.m. New York time

I have entered a short iron fly position on MSFT.

11:20 a.m. New York time

The earnings announcement for MSFT has changed from the list I am working from, and I shall analyze it as an earnings play today.

10:25 a.m. New York time

I have no earnings play that I care to take today. There are four prospects, AKS, GOOG, V and WPG.

AKS and V have implied volatility rates in the 3rd quintile (41-60), which is lower than I want to go. WPG is in the 2nd quintile, but has a lower market capitalization than I like. Market cap translates fairly closely into liquidity. AKS also has a smaller market cap than I like.

That leaves GOOG, which, at $1,096 per share, lacks the granularity needed to properly size a trade for someone with my resources. That’s personal for my account; others might find it to be an attractive.

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• Today’s Book

The Socionomic Theory of Finance

by Robert Prechter

After sharp drops like those the markets have experienced this week, everyone looks up, puzzled, and asks “Why?” The professional market watchers — from Bloomberg and The Wall Street Journal on down the size scale — all to a version of this: “The markets slid sharply today as investors grew nervous over ——“. Fill in the blanks.

I remember a time when every day, the U.S. markets were said to swing wildly because of Greece. I mean, Greece? Really? Yesterday’s swings were the result of uncertainty over the death of a Saudi journalist who wrote for an American newspaper, as well as concern over Brexit? Really? Since neither is new news?

In the 2nd quarter of this year, on average 132,628,945 shares of stock were traded each day. That’s not even looking at the options trades. Does it seems reasonable that all of those transactions made by all of those traders really had a single, simple, overwhelming reason for taking action? Especially when the causes cited are, shall we say, less than macroeconomic in their implications.

It hasn’t made sense for a long time to Robert Prechter, the leading practitioner of Elliott wave analysis, and he developed a counter-theory, which he calls socionomics. This book is the fullest account of what moves markets under his theory.

I’ve read it, and found it to be a useful corrective to the simplistic ways people think about the markets. Well worth the time investment.

More about the book

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I’ve also taken a look at SPY with an eye toward re-entering using the options that expire Dec. 21.

A chart of the movement since the Sept. 20 peak shows that, using Elliott wave analysis, SPY yesterday indeed completed the 1st wave of the Minute degree {+1}. The chart covers 30 days with 30-minute bars.

The 2nd chart, below, covers two days with five-minute bars. That closer view suggests that SPY has completed the A wave within the uptrending 2nd wave of the Minute degree. The pattern would be a B wave retracing part of the A-wave rise, and then a C-wave to the upside complete the Minute 2nd.

The re-entry point for my bear positions on SPY would be at the end of the C wave, which would mark the beginning of the 3rds Minute wave down, which should bring significant near-term decline.

Here is the status of my options positions, including SPY at the time I exited.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	3.74	65.05	(8.4)	(0.29)	23
EWZ	0.98	38.06	(14.0)	(0.12)	23
HON	6.02	149.90	5.0	0.32	23
IBM	8.95	129.55	(31.8)	(2.16)	23
JNJ	5.88	139.45	(5.0)	(0.28)	23
MCD	7.79	174.77	(25.6)	(1.59)	23
PM	3.72	88.35	(8.5)	(0.29)	23
STZ	6.40	213.51	23.8	2.00	23
UPS	7.68	110.56	6.3	0.52	58
WBA	3.96	77.02	(11.2)	(0.40)	23

And here is the status of my shares positions:

sym	share price	net result %	net profit $	days held
AAPL	221.31	-1.2%	(2.65)	40
CHK	4.32	8.0%	0.32	40
FXI	39.54	-4.1%	(1.67)	40
SPXU	38.75	-4.5%	(1.81)	162
TSLA	288.75	-5.3%	(16.24)	23
VNQI	53.03	-6.7%	(3.78)	41

By Tim Bovee, Portland, Oregon, Oct. 24, 2018

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United Parcel Service Inc. (UPS)

Update 11/8/2018: I have exited UPS for a $610 debit per contract, a $210 profit, with the shares price at $111.30 when I exited, down $2.65 from the entry point.

Shares decline by 2.2% over 16 days, or a -53% annual rate. The options position produced a 34.4% return for a +785% annual rate.

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I have entered a short iron fly spread on UPS, using options that trade for the last time 59 days hence, on Dec. 21. The premium is an $8.20 credit and the stock at the time of entry was priced at $113.95.

I entered the trade to coincide with an earnings announcement, on Wednesday, Oct. 24, before the opening bell.

The profit zone for this position is between $123.20 on the upside and $108.20 on the downside.

Read More »

11:40 a.m. New York time

I have entered a short iron fly position on UPS.

11:05 a.m. New York time

I have updated the SPY analysis with results.

10:20 a.m. New York time

Using Elliott wave analysis, I’ve labeled the current Minuette wave down since the Sept. 20 high as the 5th and final wave of the series. It has satisfied the minimum requirement for such a wave, but 5ths can so surprising power, so it may have quite some distance to go.

I won’t re-enter until Wednesday, Oct. 24, at the soonest.

The SPY chart below covers 30 days with three-hour bars.

10 a.m. New York time

Having exited SPY profitably shortly after the open, my top priority will be to redo the Elliott wave analysis to determine when to roll forward to a December expiration.

It’s another heavy day for earnings announcements. My top prospect is UPS, with an implied volatility rank in the 1st quintile. (81-100).

Other symbols on the prospects list:

1st quintile (81-100): UNM, KNX

2nd quintile (61-80): TXN, GG, F, FCX, JNPR

3rd quintile (41-60): COP, T

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Today’s Book

Atomic Habits

An Easy & Proven Way to Build Good Habits & Break Bad Ones

by James Clear

Here’s a secret not often spoken of in the “make a million in a week” circles of trading: Good trading is about sticking to the rules we’ve picked, and sticking to the rules is about good habits.

The author, James Clear, writes about the intersection of behavioral science and the habits that give structure to our days. When we have difficulty adopting new habits, the problem isn’t our will power but our system. 

How should I judge my trades? The wisest words on that subject that I’ve heard are these: Whether a trade makes money or loses it, if the trader followed his or her rules, then that trade was a success.

James Clear shows how to reach the point where by that standard, every trade is a success.

More about the book

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Here is the status of my options positions, including SPY at the time I exited.

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	4.00	64.40	(15.9)	(0.55)	24
EWZ	1.03	39.02	(19.8)	(0.17)	24
HON	5.82	150.31	8.2	0.52	24
IBM	9.39	129.32	(38.3)	(2.60)	24
JNJ	5.94	138.11	(6.1)	(0.34)	24
MCD	6.67	174.53	(7.6)	(0.47)	24
PM	3.77	88.05	(9.9)	(0.34)	24
SPY	1.67	270.95	61.7	2.69	24
STZ	6.78	214.07	19.3	1.62	24
WBA	3.95	7,735.00	(11.0)	(0.39)	24

And here is the status of my shares positions:

sym	share price	net result %	net profit $	days held
AAPL	216.91	-3.1%	(7.05)	39
CHK	4.38	9.5%	0.38	39
FXI	39.45	-4.3%	(1.76)	39
SPXU	39.27	-3.2%	(1.29)	161
TSLA	277.60	-9.0%	(27.39)	22
VNQI	52.84	-7.0%	(3.97)	40

9:40 a.m. New York time

I have exited SPY for a profit.

By Tim Bovee, Portland, Oregon, Oct. 23, 2018

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McDonald’s Corp. (MCD)

Update 11/7/2018: I have exited MCD for a $962 debit per share, down $342 from entry, with shares at $183.29, up $16.14 from entry.

Shares rose 9.7% over 16 days, or a +220% annual rate. The options position produced a -35.6% loss for a -11% annual rate.

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I have entered a short iron fly spread on MCD, using options that trade for the last time 25 days hence, on Nov. 16. The premium is a $6.20 credit per contract share and the stock at the time of entry was priced at $167.15

My decision to enter the trade was based on proximity to an earnings announcement, on Tuesday, Oct. 23, before the opening bell.

The profit zone for this position is between $173.50 on the upside and $163.50 on the downside.

Read More »

11:25 a.m. New York time

I have entered a short iron fly position on MCD.

10:25 a.m. New York time

My top choice for a potential earnings play today is MCD. It has a second-quintile implied volatility rank, but it makes up for that with a high market cap and by adding a consumer discretionary company to my holdings.

If MCD fails to qualify for trading, my next choice is MMM.

The other prospects, arranged by IV rank quintile:

1st quintile: (81-100): AMD, CAT, UTX

2nd quintile (61-80): FITB, HBAN, HOG, ZION

3rd quintile (41-60): RF, VZ

5th quintile (1-20): XL

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Today’s Book

The Fifth Risk

by Michael Lewis

Now #5 on the Amazon Charts in its 2nd week on the list. A new book by the financial writer who always finds new, and often surprising, insights into the world of money and systems.

In The Fifth Risk, Lewis dives into the most contentious issue of our times, the functioning of government in a time of attack and change.

He asks, What are the consequences of handing government over to people who have no idea how it works.

The New York Times calls it his “most ambitious and important book”. Quartz says that it is a “spellbinding, alarming analysis of the most serious threats to Americans’ safety happening now from inside the U.S. government.

More about the book

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Status of my present holdings based on options:

sym	option debit	share price	curr % max profit	net prft/shr $	option days left
C	3.02	67.65	12.5	0.43	25
EWZ	1.13	5,975.00	(31.4)	(0.27)	25
HON	5.71	151.42	9.9	0.63	25
IBM	9.57	128.84	(40.9)	(2.78)	25
JNJ	5.70	138.51	(1.8)	(0.10)	25
PM	3.55	8,788.00	(3.5)	(0.12)	25
SPY	2.74	274.79	37.2	1.62	25
STZ	9.33	223.17	(11.1)	(0.93)	25
WBA	4.06	77.62	(14.0)	(0.50)	25

And of my holdings based on shares:

sym	share price	net result %	net profit $	days held
AAPL	226.55	1.2%	2.59	38
CHK	4.57	14.3%	0.57	38
FXI	40.40	-2.0%	(0.81)	38
SPXU	37.75	-6.9%	(2.81)	160
TSLA	254.48	-16.6%	(50.51)	21
VNQI	53.77	-5.4%	(3.04)	39

By Tim Bovee, Portland, Oregon, Oct. 22, 2018

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The week brings a first look at 3rd quarter gross domestic product. The report will be published Friday at 8:30 a.m.

The release has a greater than normal potential for market impact.. The 1st quarter’s growth was 2.2% and 2nd quarter’s, 4.2%.

That’s a rapid growth rate, and as the markets begin to falter in the face of the Federal Reserve’s raising of interest rates, both the Fed and traders will give these numbers an eagle-eyed scrutiny for signs of a looming recession.

Of greatest importance for interest rates: The implicit price deflator metric within the GDP report. The FOMC gives greater credence to this measure of inflation rather than the headline-generating consumer price index, and it will be a factor the committee considers in setting the target federal funds interest rate.

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Today’s Book

The Infinite Game, by Simon Sinek

For the trader, life is a game. The questions we spend on our days, and sometimes nights, worrying about are these: What sort of game is it? What are the rules? What is my goal, besides “Make money”?

Sinek divides games into two varieties, the finite — with fixed rules and goals, like football — and the infinite — where the rules change and the goalposts move, like — well, like trading.

The book carries its discussion of games off the playing field and into the enterprise, and since trading itself is an enterprise, it’s insights apply to the games of the markets as well.

Coming soon.

More about the book

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Otherwise, it’s a savory stew of indicators: Durable goods orders, a measure of buyer confidence to commit funds for a long-term asset, and international trade in goods, important as a diagnostic of the impact of the Trump administration’s aggressive tariff policies. Each will be published on Thursday at 8:30 a.m.

There will be one housing report: New home sales, the smaller part of the market, will be released on Wednesday at 10 a.m.

The Fed’s Beige Book will be published on Wednesday at 2 p.m. It provides a narrative of economic conditions in each federal reserve bank region.

Fed Vice Chairman Richard Clarida will address London’s Peterson Institute for International Economics on Thursday at 12:15 p.m. New York time. It is his first public event as vice chairman, and it will be streamed here.

Read More »

Halliburton Co. (HAL)

I have declined to take a short iron fly options spread on HAL, using options that trade for the last time 28 days hence, on Nov. 16.

The strike prices on the options are $2.50 apart and are situated so that they are some distance from the at-the-money price. That sort of distortion makes an iron fly difficult to construct without biasing the profit zone in one direction or the other.

I  considered the trade in conjunction with an earnings announcement on Monday, Oct. 22, before the opening bell.

The profit zone for this position is between $41.79 on the upside and $39.29 on the downside.

Read More »

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 »