Generac Holdings Inc. (GNRC)

Update 10/1/2018:  I exited my short iron  position on GNRC at 50% of maximum potential profit, my designated exit point for that strategy. I bought the options back for $0.59 debit, for a $0.62 profit. Shares stood at $57.77 when I exited.

The share price fell for much of the holding period but remained within the profitable range. Implied volatility was fairly steady, declining a little but then rrising a bit. IV stood at 31% when I exited, compared to 35% at entry.

Shares declined by 1.8% over 18 days, or a -36% annual rate. The options position produced a +105.1% return for a +2,131% annual rate.

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I have entered a short iron condor spread on GNRC, using options that trade for the last time 37 days hence, on Oct. 19. The premium is a $1.21 credit and the stock at the time of entry was priced at $57.77.

I made the decision to enter the trade in my account based on high implied volatility.

The profit zone for this position is between $61.21 on the upside and $53.71 on the downside.

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2:35 p.m. New York time

I’m passing for now on LLY without a full analysis.

12:05 p.m. New York time

I have entered an iron condor position on GNRC. As it turns out, the funds in my new TastyWorks account have a five-day hold, a normal practice for the brokerage, and so I placed the trade using my TD Ameritrade account.

10:50 a.m. New York time

SPY is trading within yesterday’s range. I see no need to revise my Elliott wave analysis.

Volatility plays: My position on AAPL remains below the profit zone at the open. The company announces new iPhones and other products today at 1 p.m. New York time. My AMD position is in the zone..

I shall resume searching out new volatility plays today, now that my account on TastyWorks has been funded. I’m looking for stocks with high implied volatility that appear to have stalled for now. My preferred structure is the iron condor.

I’ll be looking first at GNRC and LLY.

By Tim Bovee, Portland, Oregon, Sept. 12, 2018

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10:25 a.m. New York time

I’ve revisited my Elliott wave analysis of SPY, the fund that tracks the S&P 500. The poorly differentiated nature of the waves within the decline  beginning Aug. 29 had left me scratching my head in puzzlement.

The answer, I believe, is to count the decline as an extended wave, which is said to occur within most impulse waves. I’ve rarely seen an extended 1st wave, and that threw me of. The leading Elliottician of our age, Robert Prechter, says that extensions occur most often in 3rd waves, and I’ve often seen them in the 5th.

Extensions occur in impulse waves — the main trend — rather than in countertrend corrections. That strengthens the case for the present decline being a 1st wave of Minor degree {+2} rather than an X wave continuation.

SPY is now in a 2nd wave correction in the Minuette degree, and when that is complete, should begin a 3rd wave that will provide a significant decline.

AAPL is slightly below the profit zone of my position, and AMD is in the zone. Both positions are based on working the odds implied by the implied volatility.

Once my new TastyWorks brokerage account is funded, I’ll be using it for odds plays, reserving my present TD Ameritrade account for Elliott wave plays. TD Ameritrade’s ThinkOrSwim platform has excellent charting and analytical features which TastyWorks does not yet have. Both platforms were developed Tom Sosnoff, a veteran options trader who has averred on occasion that he is no fan of charts and traditional technical analysis. So perhaps those features will be forever absent from TastyWorks.

By Tim Bovee, Portland, Oregon, Sept. 11, 2018

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11:25 a.m. New York time

It sometimes happens that a chart presents a series of waves bouncing along a trend without little differentiation by magnitude. Elliott wave analysis relies on how far waves move relative to others in the trend in order to label waves.

The chart above, of SPY over 15 days with 20-minute bars, is a case in point. Since the peak on Aug. 29, the price has set eight peaks downward — a series of lower highs and lower lows, before today setting a higher high in early trading.

The unresolved question regarding SPY since the peak is whether the price is tracing an X wave as part of an ongoing countertrend correction, or is it a 1st wave, the beginning of a primary downtrend as the bear market resumes its natural course.

I can tell nothing from the shape of the wave at this point. The psychology behind it is clearly a slightly dominate negative expectation for the market battling it out with a still strong positive expectation. It is the outcome of the battle within the public mood that will determine whether this is an X wave or a 1st wave.

In my odds-based trades, my position in AAPL remains unprofitable, the price having moved below the lower boundary of the profit zone. AMD remains in the zone and is showing a small profit.

As promised, over the weekend I explored the TastyWorks brokerage over the weekend. It is the work of Tom Sosnoff, a veteran options trader upon whose style and methods I have based my own.

The biggest advantage that I see so far is very low fees for options trades: $1 per contract entered, and zero dollars — nothing — for exiting trades. That low overhead means I can do smaller trades, and therefore increase the number of positions I hold at any given time. The larger the number of trades, the more statistics can work in favor of a profitable outcome.

Sosnoff’s motto, which I’ve adopted as one the aphorism that govern my work: Trade small, trade often. TastyWorks pricing makes the small possible.

This is a very good thing, and I’ve opened an account.

By Tim Bovee, Portland, Oregon, Sept. 10, 2018

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The Marketplace in Gisors (1891) by Camille Pissarro

Prices rule the week in economic data releases, the producer price index-final demand out Wednesday and the closely watched consumer price index on Thursday, each at 8:30 a.m. New York time.

Other new numbers influencing the markets will be released on Friday, retail sales at 8:30 a.m. and industrial production at 9:15 a.m.

In a switch from number to narrative, the Federal Reserve on Wednesday at 2 p.m. will publish the Beige Book describing conditions in each of the Fed’s twelve districts. Gripping plot, zany characters — a must-read for those who love the genre.

Two Federal Reserve governors have public appearances during the week.

Fed Gov. Lael Brainard will speak to the Detroit Economic Club about the economic and monetary policy outlook, on Wednesday at 12:45 p.m. New York time.

And Fed Gov. Randal Quarles, the vice chairman for supervision, will testify before the Senate Committee on Banking, Housing and Urban Affairs. His subject will be implementation of the Economic Growth, Regulatory Relief and Consumer Protection Act of 2018, legislation that eases regulations imposed by the Dodd-Frank Act financial reforms after the crisis of 2007-08. The hearing begins on Thursday at 10 a.m.

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10:20 p.m. New York time

SPY opened at a lower low but then rose up into yesterday’s range. My volatility plays in AAPL and AMD remain out of the money, which is another term for the profit zone.

And my often ignored shares position on SPXU, an S&P 500 inverse and leveraged fund, remains unprofitable. If  the bearish conclusion of my Elliott wave analysis turns out to be correct, then it will return to profitability in the near term.

Rather than adding to my positions today, I’m waiting until next week in the interest of providing some time diversity to my holdings.

On Saturday I shall post the Week Ahead of what to look for next week.

By Tim Bovee, Portland, Oregon, Sept. 7, 2018

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Advanced Micro Devices Inc. (AMD)

Update Oct. 2, 2018: I exited AMD for a $1.74 profit on the options, with shares trading at $30.21 at exit, The exit price was within the profit zone, 21 cents away from the short calls strike price.

Implied volatility at exit was 74%, two points above its level at entry.

I exited at 77.6% of maximum potential profit, well above my target of 50% of max.

Shares rose by 6.1% over 26 days, or an 86% annual rate. The options position produced a 345.5% return for a +4,85-% annual rate.

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I have entered a short iron condor on AMD, using options that trade for the last time 29 days hence, on Oct. 5. The premium is a $0.98 credit and the stock at the time of entry was priced at $28.48.

I made the decision to enter the trade in my account based on a high implied volatility rank and a trending counter to the broad markets.

The profit zone for this position is between $32.98 on the upside and $25.48 on the downside.

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12:10 p.m. New York time

I’ve entered a short iron condor position on AMD.

11:10 a.m. New York time

Of my volatility prospects, I’m tossing KR and LEN because they have earnings coming up soon. I’m passing on EBAY bceause the chart has developed a significant downward movement.

For this strategy, I’m looking for stocks that aren’t moving directionally. My method at this point is to look either for sideways moving charts or stocks that are moving contrary to the market’s main trend, which I consider to be downward.

The remaining symbols are CRM, with an implied volatility rank (IVR) of 40%, and AMD, with an IVR  of 54%. The AMD rank is calculated from a spike last March. If I follow my practice of eliminating major outliers, AMD’s IV is at its high point of the year, giving an IVR of 100%.

I shall analyze AMD as a potential volatility play.

10:45 a.m. New York time

In my Elliott wave analysis prospects, SPY is trading within yesterday’s range, albeit with a lower high, suggesting that the next wave down is continuing at a tentative pace.

In trades using volatility strategy, AAPL has dipped below yesterday’s range. The position has an 85.9% chance of expiring profitably to the downside and a 68.6% chance to the upside.

I shall review five potential volatility plays today: KR, CRM, LEN, EBAY and AMD.

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

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Apple Inc. (AAPL)

Update 9/21/2018: I have exited AAPL at $3.92 per contract/share, a small loss. I exited a week before expiration as the share price continually toyed with the lower breakeven level.. The share price was $228.71 at the time I exited.

Shares declined by 4.2% over 16 days, or a -95% annual rate. The options position produced a 0.8% loss for a -17% annual rate.

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I have entered a short iron condor on AAPL, using options that trade for the last time 23 days hence, on Sept. 28. The premium is a $3.89 credit and the stock at the time of entry was priced at $228.71.

I made the decision to enter the trade in my account based on high implied volatility relative to the past 52 weeks.

The profit zone for this position is between $238.89 on the upside and $216.39 on the downside.

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1:30 p.m. New York time

I’ve entered a position on AAPL.

1 p.m. New York time

To the final four I added NFLX, and I then recalculated the IV rank to get a more current figure than that provided in the TastyTrade report from which I chose prospects.

That recalculation made LULU less attractive by lowering the IV rank to 29. Also, earnings produced an upside gap, and I’m not yet certain whether the price has stabilized. So I’ve passed on LULU.

I also declined further consideration of AMZN because of the high price of shares. A $2,000+ price tag would require me to commit an overly large proportion of my trading funds to a single symbol. My rule is, echoing Tom Sosnoff, is: Trade small, trade often.

NFLX is fine with a price that meets my standards and a decent IV rank of 58. But the price is undergoing a marked directional move downward, so I’m passing for now.

That leaves AAPL, with an IV rank of 57 and CRM, with an IV rank of 37. AAPL first, and if passes muster for a trade, then in the interest of time diversification,  I’ll defer further consideration of CRM until a later day.

11:05 a.m. New York time

For the Final Four — LULU, CRM, AMZN and AAPL — here’s how I’ll be thinking through the trading decision.

Each trade will be structured as an iron condor, meaning that there will be a zone of profit surrounding the current price, and a move too far up or down will move the position into the loss column.

I favor higher implied volatility relative to its history because that allows me to use a wider zone of profit. It’s possible to skew an iron condor to favor one direction or the other. For this first batch, I intend to build the trade without skewing.

The other factor is the expiration date. Generally, the further out the expiration, the higher the premium and therefore the wider the zone of profit. But time itself is a risk factor. The quicker I can exit a trade profitably, the less my potential risk, and the longer I linger in a position, the greater my risk. Given the uncertainties uncovered by my Elliott wave analysis of SPY, I shall aim for shorter-term trades as close to 30 days out as I can get. In order to attain that goal I will consider weekly option issues. They tend to have wider bid/ask spreads than do the monthlies, reducing profit, but I consider time to be a greater risk.

That’s it. Time to get to work.

10:35 a.m. New York time

I’ve eliminated one of the prospective odds trades because of an approaching earnings announcement: ORCL on Sept. 13.

And I’ve struck five because they are moving down, and I’m looking for rising or sideways stocks. The downtrenders are TSLA, FB, GOOG, INTC and TWTR.

That leaves LULU, CRM, AMZN (which will probably be too expensive for my standards) and AAPL remaining from my first batch of prospects. Of those, LULU and CRM have high IV ranks, 64 and 51, resepctively. AMZN and AAPL have IV ranks in the 20s.

9:55 a.m. New York time

SPY has begun the day trading within yesterday’s range. I anticipate no re-entry of my trading based on Elliott wave analysis.

As I noted yesterday, I shall be considering the wisdom of re-engaging with the odds-based strategy I used extensively before the bear market began on Jan. 26. The first batch of prospects I’ll be exploring are LULU, TSLA, ORCL, CRM, FB, GOOG, INTC, AMZN, AAPL, TWTR, NFLX.

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

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