ADOBE PRE-EARNINGS OPTION TRADES -SUMMARY

EQUITY in this ledger: Adobe (NASDAQ:ADBE)

Introducing our move toward a “block” “chain” model using Excel for baseline configuration of input/output parameters regarding Option Trading.

  1. Block: CODEX.  C-RTN, Spread (Strangle), “BUY” (Calculated signal),  Profit/Loss
  2. Excel Layout – Call/Put Workbook Inputs
  3. Determining Option Chain, Strike Price, Premium correlations
  4. Macroaxis Finance:  ADBE Recommendation Graphic

Taking into account the opportunity to make profits from the earnings volatility, we review out context for the pre-earnings report for the asset Adobe (NASDAQ: ADBE).

  1. CODEX/C-RTN BLOCK:  This is a signal based calculation that takes into account both underlying price ranges and statistical computations.  It is sensitive to price move, just as Beta, even more so, and provides a Forward-Looking outcome.  When CODEX is positive than the underlying price trend is Bullish.  When it moves into the negative, the underlying price trend is Bearish.  The max number either way is +1.000 or -1.000.   C-RTN represents a modification of monetized cyclic period to determine the trend, and a calibrated signal “BUY” that is based on a Logic formula.   When the Codex and C-RTN are in conflict, meaning they don’t complement either positive or negative outputs, than there is a risk averse alert for entry.
  2. The CALL/PUT “BLOCK”  aligns the correlated data inputs provided to track the variances between elements.   The Excel layout is flexible so that the elements can be arranged in accordance to the option trader’s hypothesis.  We use “Thinkorswim” to export the selected option chain(s) that is pasted into adjacent spreadsheet.  Then the relevant data is cut and pasted into this format.   What is not shown is the DTE  (Time Decay) entry price BLOCK that provides the “limit” order price in relationship to the traders spread.  You’ll notice the Entry Price input where, in this case, we went Out-of-the-Money (OTM) for both Long Call/Put.  Typically, we prefer a comparable premium, yet our strategy for this trade was short term, capitalizing on volatility and time decay.
  3. BLOCK ARCHITECTURE for this layout is meant to be an optical reference; both for mental entrainment by seeing the correlation of the underlying price move to the Options inputs, and providing an orientation to see time decay of the premiums in real time.

Our terminology has changed over many times over the years.  Conceptually, it’s basically all the same:  building a node of dependent statistical input data that is available to be “chained” or “linked” or “neural” to other “clustered” independent data that is incorporated into various Excel formulas.  We like the flexibility of using Excel as it gives us many options for simulating outcomes and most importantly Proof of Concept.

This ledger publication is extremely simplified in presentation.  As we present more of our own trades and the context behind them, things will become sophisticated and in-depth.

 

CODEX C-RTN P/L
0.07804 -0.0162 $72.00
STRANGLE BUY Signal
CALL PUT
Month 16 SEP 16 (4) 100
Trade Date 09/12/16 09/12/16
Strike 100 95
Premium 3.05 2.13
Ask 3.10 2.16
Entry Price 3.900 0.920
Delta 0.4682 -0.3235
Vega 0.1284 0.116
Prob OTM 0.5679 0.6407
Volume 130 32
Implied Vol 0.2791 0.2982
Gamma 0.0441 0.0373
Contracts 200 200
Close $610.00 $432.00
Open $780.00 $184.00
Profit/Loss -$170.00 $242.00

Macroaxis Financial Analytics provides a complete breakdown of relative analytical elements used by portfolio managers.   We use Macroaxis for several reasons; in this case we wanted to see what the overall market sentiment was for Adobe prior to their earnings release.  We’ll incorporate this feedback into making a case for leaning into either the Call or Put.

screenshot-www-macroaxis-com-2016-09-12-18-09-50

GRTS Market Analysis and Codexquant are meant to present educational thesis’ to provide insightful means of attaining impartial investing decisions.  The take away, moreover is an orientation to confront “our” bias and blind spots when it comes to the truth.  Traditional means are quickly being replaced by highly advanced technological devices and programs.  If we can provide one with a new insight of what’s valid in revising the way we assess our global economy, than we’ve achieved our purpose.

THINK BACK: TWITTER EARNINGS – THE WHIPSAW OPTION STRANGLE TRADE

In this blog we discuss how we found which option side to lean into prior to Twitter’s (NASDAQ:TWTR) earnings release the following day – 10/27/2015.

It never amazes me when the predictable is always the unpredictable when it comes to trading options around earnings.  The “zero sum” outcome and randomness of the efficient market indicators are equally reliable to be unreliable.  What goes down must come up.

And paradoxically, TWTR posted a plus in earnings, though minuscule by our standards, market makers obviously have inventory lined up to short TWTR, proving that our PUT weighed values were correct: but only momentarily since TWTR returned to the breakout price on during intraday trading on 10/28.

Posted Table on October 26, 2015 the day before Twitter posted earnings.

Estimate is -0.24 cents and actual was 0.10 in After Market Reporting.  What transpired as to the volatility of movement provides excellent feedback as to why you’re flying blind, even with statistical evidence to support a “mechanical” risk defined trade.

In this table below you’ll see our goal post statistical data indicator’s comparison between the NOV 2015 Call/Put analytic matrix that is calculated by our Codex.qbt* formula.

How to read this graph:  On both left and right sides we have Call and Put coinciding indicators: Premium (Ask), our entry price (calculated for a limit order entry), Bio premium price, Delta Hedge (not direct Delta, but our own calibration), Gamma, Implied Volatility at the Strike, Probability Out-of-the-Money, Strike, Number of contracts in hundredths, Probability of Profit (calibrated to our own formulary), P/L, and Skew price.  Note: Intrinsic is purposely left blank as this is a short term trade.

In the middle are the Logic signals:  Delta Hedge shows “Call” and Implied Volatility shows “Put”, a contradiction that played out accordingly.  The “Spread .03” Alert is to signal us when the spread between the Bid and Ask expands greater than two cents.

Stock quote and option quote for TWTR on 10/26/15 08:13:03
CALL P/L Strangle PUT P/L
$38.00 $260.00 $222.00
NOV 15 (25) 100
CALL OFFSET** PUT
Premium 1.98 $260.00 Premium 2.060
Entry Price 1.78 DELTA Entry Price 1.931
Bid Price 1.93 PUT Bid Price 2.07
Delta Hedge 0.3381 Delta Hedge 0.427
Gamma 0.0887 IV Gamma 0.1272
IV 0.743 PUT IV 0.760
Prob OTM 0.61 Prob OTM 0.52
Intrinsic Spread > .03 Intrinsic
Strike 32.00 CALL Strike 30.00
Contracts 100.00 ALERT Contracts 300.000
Prob of Profit 0.1921 PUT Prob of Profit 0.1935
Profit/Loss $38.00 ALERT Profit/Loss $222.000
Skew Price 1.94 Skew Price 2.209

What sticks out is that the Implied Volatility is .743, well above our .45 threshold for mean reversion of a Buy Call signal; and that the Put indicators out weigh the Calls.

With a favorable out come of TWTR going short, we executed a cost reduction limit order with 3 Long Put contracts and 1 Long Call contract, to protect the upside, so not to diminish our profits.  You’ll notice we were pretty close in matching up the premiums for pairwise management of risk to reward ratios.

twtr earnings
Entered around $30.89. Surged up for a Call scalp profit and closed out at closing bell. Held the Put side to the opening bell on 10/28 to lock in profits at $28.80.

TOS “think back chart” (The outcomes are not as accurate given the intraday subtleties involved in our trade executions.)

The totals are listed in the above graph: Call profit was $38 on one contract and Put profit was $222 giving us a $260 pay out minus the per contract fees.  The whipsaw volatility on price formation was foretold by the OTM percentage.

*Codex.qbt is our bootstrapped Excel quantitative statistical model name.

It is in the Proof of Concept phase; based on the hypothetical Qubit “superposition” of categorical data inputs compiled into statistical data bins then calibrated for a “measure of certainty” outcome.

**Offset is the combined profit/loss between the Call and Put positions.  This is an excellent visual for “Strangles” and “Straddles” as you can see how both positions can become profitable at the same time.

Do you use TOS?  Would you like to have our Open Source Excel spreadsheet models for your own use?

Available for MSN Excel 2010, Apache Open Office and Google Spreadsheets.  These spreadsheets can be customized for your own trading style and watch list selections.

Inquire at: grtsmarket@gmail.com for a list.

Peace.

RK

Disclaimer:  The above information is for educational purposes only.  We make no claims of validity or suggestion for trading the assets listed.

JAN 7 – TGT SETS RECORD HIGH – OPTION PLAY – FYI: FOMC

(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
TGT 76.56 76.81 2.59 0.2118 0.1455 0.50 1.26 79.682

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.

Contrarian Play

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.

 

PEACE.

Skokie

tgtputtrade

FITB – UPDATE

We presented an example of a Covered Call for FITB last week.

Using our NQ2 Engine’s inputs, the Option Chain inputs directed us to BUY a CALL at the $20 Strike Price with a Limit Entry Price at 0.42.

Using the Reduced Cost Basis formula, we’ve maintained our profit since the order was taken last Friday.

If you look at the previous chart we posted, you’ll see in the current chart that our NQ2 formula correlated with the technical chart analysis.

Today’s Day Chart at 11AM (PST)

2014-08-25-TOS_CHARTS

 

The Trend Line broken through the 34 EMA (Red Line)  and is headed toward the 144/89 EMA (Yellow and Blue Lines) junction.  The Trend bounced off of the 377 EMA which signaled a continuing Bullish trend.

The current price is $20.50.  Our target price is $20.76.  Once this price is hit, then we will consider closing out position.  The reason is our “Conditional Probability” is signaling a “fade” on the current trend with a Put Probability of Profit at .57% and the Call Probability of Profit at .34%.  Moreover, out input parameters are indicating that the Book Order Limit Price is $20.75.  As well, our trade Delta is .71 with a 70% ITM, listed on the TOS platform.

Here is the Excel spreadsheet’s current data report.

LIQUIDITY TREND IV SIGNAL
0.21% LOW BULL CALL

 

DERIVATIVES – COVERED CALL
Call Return 0.75 Inverse 0.25 Monetized 1.50

 

OPT TRADE STRIKE CURRENT LIMIT ENTRY TGT P
CALL BUY 20.00 0.65 0.57 0.89
PUT SELL   0.10 0.09 0.40

 

(Disclaimer:  We are not recommending trades.  This post is for educational purposes only.  We make no claims of performance past of future of this asset.  Feedback is welcomed.)