CXQ QUANT – MACROAXIS RESEARCH HUB
Tracking Amazon (NASDAQ: AMZN)
Strangle Option Spread – Long Call Short Put
Strangle CALL PUT
Month 18 AUG 17 (44) 18 AUG 17 (44)
Entry Date 7-Jul 5-Jul
Position LONG SHORT
Strike 990 975
Entry 28.25 31.35
Bid 38.40 19.60
Ask 39.05 20.10
IVol 25.29% 25.75%
Delta 0.58 (0.35)
Volume 9 12
Prob OTM 45.28% 61.94%
Contracts 100 100
Cost $2,825.00 $3,135.00
P/L $1,015.00 $1,175.00
DTE $29.52 $10.53
EXP $1.27 $10.53
DTE $127.13 ($2,081.82)
Note: Entry was seven days ago – the 7-day cycle. The Put Delta has decayed substantially. The DTE Price calculations show a very strong Call position for intraday trading. Kept contracts to 1 or 100 shares. Initially entered with the AUG option chain at 44 days out. Implied Volatility below 35% so a strong Buy on the call side and Short on the put side. Volume sparse – higher Put translates into selling the Bid.
To retain our profits we’ll close the Long Call and Short Put position today since it’s Friday.
About DTE: Time decay is essential in knowing what the option premium will be at the time of Expiration of the option chain. We have used Edward Thorp’s formula that he devised in relationship with the Black Swan formula – though we replaced the BS with our own equation set to determine what the DTE premium will be and what profit or loss there will be with the option investment over the time (t). By incorporating the cost of the trade we have devised a means of seeing what amount will be lost in relationship with our capital outlay. In this case – the numbers show a positive outcome that confirms are choice to Short the Put and Buy the Call.
*The formula is: M = m + v 2/2
m = lognormal
v = volatility
lognormal + volatility 2/2
m is the lognormal drift parameter and v is the volatility
Here is how it looks on our Excel spreadsheet matrix. The “Drift Price” is key to finding the asset price based on the time horizon (which we configured into another set of equations utilizing an independent and dependent linear regression combination offset by the lognormal equation.
|E Log||SQRT||Drift P|
Taking it one step further Thorp hypothesized (in the late 60s):
*E(S(t)) = S((0)) exp (Mt) is the expected value of the stock at time t if S(0) is the initial price.
The Final Results are calibrated into our CXQ and C-RTN Scorification Matrix:
Translated: CXQ above 0.55 is a Buy signal. CXQ2 is secondary to the C-RTN to show the covariance of their “gap”. The closer the gap the more valid the signal to Buy. The Thorp Drift Price score confirms a strong Buy signal. Probability of Profit is based on “intraday” price moves.
MACROAXIS RESEARCH HUB
AMZN has a Piotroski Score of 7 (very strong), though it’s showing an overvalued price. Still analyst recommendations are a Strong Buy (24 versus nearly 0 for Strong Sell). Right now AMZN is trailing behind the major indexes. NASDAQ up 0.21%. (A telltale tip off is that Apple (NASDAQ: AAPL) didn’t hold its gains from yesterday.)
Jeffrey Bezos sold 155647 of common stock at a value of $0.01 per share on July 11, 2017. Major Institutional holders are Swedbank (565.5K common shares valued at 5548.3M) and Bank of Montreal (552.7K common shares valued at 535M.)
TAKE AWAY: Close current position to take profits off the table. Reset on Monday to Short the Option.
About R. Kambak – provides input for the Macroaxis Research Hub. Anyone interested in obtaining the CXQ Excel Model please write to him: firstname.lastname@example.org. In the Subject: CXQ Request. The TOS charts are posted with credit to the platform/brokerage. All MSN Excel spreadsheet posts are solely Mr Kambak’s own creation. Attribution-NonCommercial-NoDerivs CC BY-NC-ND Duplication is strictly prohibited without attribution.