8/25 – 2:40 p.m. New York time
It has been a nine-trade day.
I entered four positions, GME, BIG, MRVL and COST.
I exited five positions: MDT, DLTR, HPQ, NTAP and LOW, each for a profit.
I placed an exit order on CPB this morning, but it appears unlikely to be filled today. I shall leave the order active until the closing bell in the hope that the price moves my way.
Medtronic plc. Ordinary Shares (MDT)
Update 5/25/2017: MDT whipsaws after earnings were published, rising and then falling, and then rising again to recover most of the decline. I exited at slightly below my entry price, at 40.1% of maximum potential profit.
From entry the day before to exit shares had a net declined by 0.5%, or a -176% annual rate. The optons position produced a 66.9% yeld on debit for a +24,417% annual rate.
MDT publishes earnings on Thursday before the opening bell.
I shall use the series of monthly options that trade for the last time nine days hence, on June 2.
Implied volatility stands at 20%, which is 1.9 times the VIX, a measure of the volatility of the S&P 500 index.
MDT’s IV stands in the 37th percentile of its annual range and the 84th percentile of its most recent broad movement.
PVH Corp. (PVH)
Update 6/6/2017: PVH gapped sharply to the upside after earnings were published and then slow retraced about 60% of the rise. I exited at my target price, 25.0% of maximum potential profit.
Shares showed a net rise of 3.0% over the 13-day lifespan of the position, or a +85% annual rate. The options position produced a 33.3% yield on debit for a +936% annual rate.
PVH publishes earnings on Wednesday after the closing bell.
I shall use the series of monthly options that trade for the last time 23 days hence, on June 16.
Implied volatility stands at 35%, which is 3.3 times the VIX, a measure of the volatility of the S&P 500 index.
PVH’s IV stands in the 53rd percentile of its annual range and the 84th percentile of its most recent broad movement.
Abercrombie & Fitch Co. (ANF)
ANF publishes earnings on Thursday before the opening bell.
I shall use the series of monthly options that trade for the last time nine days hence, on June 2.
Implied volatility stands at 71%, which is 6.9 times the VIX, a measure of the volatility of the S&P 500 index.
ANF’s IV stands in the 91st percentile of its annual range and the 97th percentile of its most recent broad movement.
Dollar Tree Inc. (DLTR)
Update 5/25/2017: DLTR declined sharply after earnings were published, and I exited a 42.1% of maximum potential profit. In the hour after my exit it rose sharply. Both the decline and the increase remained within the boundaries of my position’s wings.
Shares at exit had declined by 0.1% from when I entered the day before, or a -40% annual rate. The options position produced a +72.6% yield on debit for a +26,496% annual rate.
DLTR publishes earnings on Thursday before the opening bell.
I shall use the series of monthly options that trade for the last time nine days hence, on June 2.
Implied volatility stands at 34%, which is 3.3 times the VIX, a measure of the volatility of the S&P 500 index.
DLTR’s IV stands in the 58th percentile of its annual range and the 86th percentile of its most recent broad movement.
NetApp Inc. (NTAP)
Update 5/25/2017: NTAP rose after earnings were published, and I exited at 47.1% of maximum potential profit.
Shares rose by 0.4% over one day, or a +143% annual rate. The options position produced an 89.2% yield on debit for a +32,539% annual rate.
NTAP publishes earnings on Wednesday after the closing bell.
I shall use the series of monthly options that trade for the last time nine days hence, on June 2.
Implied volatility stands at 36%, which is 3.4 times the VIX, a measure of the volatility of the S&P 500 index.
NTAP’s IV stands in the 53rd percentile of its annual range and the 79th percentile of its most recent broad movement.
HP Inc. (HPQ)
Update 5/25/2017: HPQ whipsawed after earnings were published, rising and then declining over a 5% range. The price was close to my entry price when I exited, at 44.9% of maximum potential profit.
Shares had risen by 0.8 since I entered the prior day, or a +298% annual rate.The options position produced a +81.5% yield on debit for a +29,762% annual rate.
HP publishes earnings on Wednesday after the closing bell.
I shall use the series of monthly options that trade for the last time nine days hence, on June 2.
Implied volatility stands at 39%, which is 3.7 times the VIX, a measure of the volatility of the S&P 500 index.
HP’s IV stands in the 91st percentile of its annual range and at the peak of its most recent broad movement.
Best Buy Co. Inc. (BBY)
Update 5/26/2017: Shares gapped sharply to the upside after earnings were published and I exited for a loss a week before options expiration.
Shares rose by 17.4% over two days, or a +3,176% annual rate. The options position produced a 47.0% loss on debit for a -17,162% annual rate.
BBY publishes earnings on Thursday before the opening bell.
I shall use the series of monthly options that trade for the last time nine days hence, on June 2.
Implied volatility stands at 45%, which is 4.3 times the VIX, a measure of the volatility of the S&P 500 index.
BBYs IV stands in the 81st percentile of its annual range and the 99th percentile of its most recent broad movement.
5/24 – 2:50 p.m. New York time
I entered positions in BBY, HPQ, NTAP, DLTR, PVH and MDT. I had expressed doubts last night about whether PVH and MDT would work as trades, but as it turns out, they did. Always my preference, even at the end of an hour and a half of hard trading.
I rejected ANF after a full analysis.
I rejected SIG, without a full analysis, because the $5 interval between strikes causes new much of a loss in granularity, making it difficult if not impossible to set reasonable wings for the iron fly construction.
I placed an exit order on CPB that has not yet been filled. I shall leave it active until the closing bell.
I sell volatility short. Simple as that.
My job as a trader to to find a stock or fund symbol with high implied volatility on its options, and to sell that volatility at a high price in the hopes of buying it back low price later on.
I do it by selling iron condors — a bull put spread and a bear call spread tied together in a single conceptual structure — usually using the iron fly variant, where the short legs of both spreads have an identical strike price. My profit relies on the premium I receive and on how wide I can reasonably make the wings of each spread.
I often think of it in terms delta, placing the short legs around delta 50 and the long legs around delta 10. (See the table in any of my recent analyses for an example of how I think about it.)
But how high must volatility be before it’s high? And how low is too low?
Important questions without a clear objective answer. Let’s explore some possibilities.
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