(Disclaimer: This post is for educational purposes only. I am not making any trading recommendations nor can held liable for one’s losses. It is entirely up to you to decide what makes sense. The take away here is a template formula that you can use for your own strategy building model.)
S&P 500, DOW and NASDAQ are all bullish currently. FOMC meeting minutes will be released at 2PM (EST).
|Symbol||Price||Offer||Net Chng||P Act||IV 15D||SV||SD||P Target|
Target (TGT) climbed during extended trading yesterday after the closing bell, only to skyrocket this morning breaking its previous 52 week high. The trajectory peaked at $76.93 before the jet pack ran out of fuel.
We’re in a mid-day session pull back and flattening out at $76.61(-0.12%).
TGT started its Bull Run on November 11, 2014, after a long dry spell caught in a sojourning price range. If you missed the November 18, 2014 entry point to capture the final leg up, then it’s pretty much a done deal for anymore excitement.
What could have carried TGT to a new high are two items: The Christmas Ugly Sweater competitions and the announcement that Google (GOOG) partnered up with TGT on their latest “Art, Copy, & Code” interactive, in-store mobile experience designed to thrill Target consumers of all ages.
Context and Analysis
The JAN 15 with 9 days left to expiration. The IV (Implied Volatility) Rank is 65% and the HV (Historical Volatility) Rank is 45%. In our strategy rule book that’s a “SELL” signal. Currently, the Price range standard deviation is 1.26, which in offsets the “SELL” signal because it’s higher than the HV.
The JAN 15 option chain Implied Volatility is 26.59%. We can recalculate the Implied Volatility using a matrix equation that determines the “true” IV with a preset of percentages applied to specific days. This formulary comes from the team at Tastytrade/Dough.
We’ll use the 0.577% (7 DAYS) to adjust the current IV: .2659 x 0.577 = .15%
This tells us that there is a 15% IV potential of premium movement up to the day of expiration.
On the Call side: There are +10K open interests at the 76 Strike with a net change of +1.06 gain on the premium. The current Mark is 1.49, pulling back from a 1.55 high.
On the Put side: comparatively there’s not much open interest to be seen, except a +2K at the 75 Strike. Net change is -1.07, comparatively to the Call net gain.
TGT historically doesn’t hold its new high price levels. More of a range bound price formation trait, We’re going to watch TGT to wait for a “reduced cost basis” PUT premium price on the JAN 15 option chain at the 76 Strike price that is currently hovering around .95 with a day high of 1.04.
That means we’re watching for another price move upwards into an already overbought scenario ; the underlying target price is $75.50 – first red arrow – (34 Exponential Moving Average – EMA) to the breakout from the EMA consolidation – second red arrow – as shown on the chart below. If TGT returns to the EMA consolidation breakout (that might become its new support price, we’ll have a 3% move on the premium. One PUT contract will bring an estimated profit of $144.
Our strategic rule on this one is when the asset skyrockets in one day, they’ll be a 50% retracement back down from the highest high. The hypothetical price target posted in the graph at top gives us an idea of the potential of price move still left in the underlying before entering our Long Put on the JAN 15 76 Strike.