February 14, 2017
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February 14, 2017 Dividend Aristocrats. Dividends are seen by some as a less intriguing way of creating wealth than, say, trading price action; however, over the past 20 years, 50% of the S&P 500's returns have come from dividends rather than price appreciation. Combined with a strategy of selling a call against every 100 shares owned, we can theoretically reduce cost basis even further.
cut in dividends; this sequence of events, in turn, can result in further price decline due to overarching instability. See where we are going with this? The idea behind the "Dividend Aristocrats" refers to stocks whose management has increased their dividends for the last 25 years – the focus then becomes one pertaining less to the actual dividends and more to the financial stability of the company. Traders looking to add some long delta might consider a covered call strategy on one or more of these “Dividend Aristocrats,” by which they would be reducing cost basis on two ends. The strategy is not without risk, though, as dividend stocks tend to act more like bonds than the overall market. Possible raises in interest rates would decrease bond prices and create a drag in dividend stocks. There is also the risk that the stock decreases or cancels their dividend. All the more reason why we like to sell calls against shares held – to reduce our cost basis and therefore increase our theoretical probability of success.
Be that as it may, we do not necessarily advocate for seeking out and buying stocks with the highest dividend yields. Dividend yields of 10% and greater are not uncommon, but these are usually associated with large declines in share price rather than the generosity of the company. Declines in price can also coincide with poor earnings, which often leads to a Description Coca-Cola (KO) AT&T (T) IBM (IBM) Target (TGT) Caterpillar (CAT) Exxon (XOM) McDonalds (MCD) Procter & Gamble (PG) Johnson & Johnson (JNJ)
Market Cap. 175 Billion 250 Billion 171 Billion 37 Billion 57 Billion 343 Billion 104 Billion 225 Billion 316 Billion
Possible Candidates. Below we provide a few trade ideas. The Buying Power Reduction shown is the result of buying 100 shares and selling an OTM call. Michael Rechenthin, PhD Frank Kaberna [email protected]
Div. Yield 3.5% 4.7% 3.1% 3.7% 3.2% 3.6% 3.0% 3.0% 2.8%
IV/ IV Rank 13 / 12 16 / 18 17 / 9 28 / 44 23 / 8 16 / 1 17 / 13 16 / 23 13 / 6
Buying Power Reduction $2,000 $1,950 $8,900 $3,150 $4,770 $4,100 $6,100 $4,050 $5,650
Reading this Report Expected Range Cone. The following pages show stocks and ETFs that the tastytrade Research Team currently find have relatively high or low volatility. The colored cone represents a 30-day expected theoretical price range that is calculated from the options’ implied volatilities. If the implied volatility is relatively high, then the market is expecting a larger price change in the underlying stock or ETF. From this we can derive the market’s 1 standard deviation theoretical expectation of where prices might be in the future. In other words, the market is expecting, with a 68% theoretical probability, that prices will fall within the boundary of the cone at the end of 30 days.
Cone Color. The color of the cone is significant. The darker the color, the
more “extreme” the implied volatility (IV) which is represented by implied volatility rank (IV Rank). This information can help you decide on a trading strategy.
Glossary IV. Implied Volatility is the estimated volatility of a security’s price derived from its option price; the higher the IV, the more expensive the
option and therefore the larger the expected price move. IV is an annualized number of volatility, e.g. a IV of 27 means the option’s market is pricing in an annualized price range, either plus or minus, of 27%.
IV Rank. IV by itself doesn’t tell us if if the volatility is high or low - but IV Rank does. An IV Rank of 70 means that the IV is 70% between its low and high IV over the past year. The higher the IV Rank, the higher the security’s IV is compared to its past year. We provide six levels to make evaluating easier: • Extremely High: IV Rank between 90 and 100 • High: IV Rank between 75 and 90 • Moderately High: IV Rank between 50 and 75 • Moderately Low: IV Rank between 25 and 50 • Low: IV Rank between 10 and 25 • Extremely Low: IV Rank between 0 and 10
Option Liquidity. At tastytrade we have our own theoretical measure of option liquidity, Poor, Moderate, Good, or Great. It examines the options’ bid/ask spread, open interest, and the number of strikes with non-zero bids.
Correlation with S&P 500. Correlation is a statistical measure of how strong a relationship two securities have with one another. A correlation of -1 means the stocks are perfectly negatively correlated (they move in opposite directions), while a correlation of +1 means the stocks are perfectly positively correlated (they move in the same direction). A correlation of 0 means there exist little relationship.
Earnings. The earnings date of the security. In practice we tend to see stocks have a larger amount of implied volatility (IV) nearer to
earnings as the market is pricing in the fear of the upcoming earnings announcement. In parethesis, is BTO or AMC; "Before the Open" or "After Market Closes", respectively. Upcoming earnings dates do sometimes change.
Disclosures tastytrade content is provided solely by dough, Inc., and is for informational and educational purposes only. All volatility, probability, liquidity and correlation numbers are purely theoretical in nature, and are for illustrative purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures, transaction or investment strategy is suitable for any person. Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. tastytrade or its parent, dough, Inc., does not provide investment or financial advice or make investment recommendations, nor is either in the business of transacting trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives.
This is our broad view of the market ranging from stocks to bonds to currencies.
Exchange-traded funds (ETFs) are securities that trade like stock while tracking indices, commodities, bonds, and baskets of assets. We are tracking these ETFs because of the opportunity that they present and the liquidity that they exhibit.
These are a few of the individual stocks that we have on our radar. Always be aware of expected earning date when choosing your expiration. Individual stocks do have more risk of sudden moves - make sure you are compensated for the risk.
Earnings trades offer investors opportunities in stocks with the largest potential of a volatility contraction the day after a company announces their quarterly earnings report. For trade ideas watch "In the Hot Seat with Pete" daily at 2:00pm CST.
Expected Date
Symbol
Description
Release Time
Market Cap (Billions)
Tue Feb-14
TMUS
T-Mobile US
Before Open
50.3
Tue Feb-14
AIG
American International Group New
After Close
68.3
Tue Feb-14
ESRX
Express Scripts Holding Company
After Close
43.0
Tue Feb-14
DVN
Devon Energy Corp.
After Close
23.6
Wed Feb-15
PEP
Pepsico
Before Open
152.4
Wed Feb-15
GRPN
Groupon
Before Open
2.2
Wed Feb-15
CSCO
Cisco Systems
After Close
160.4
Wed Feb-15
AMAT
Applied Materials
After Close
38.0
Wed Feb-15
CBS
CBS CorpClass B
After Close
28.1
Wed Feb-15
ABX
Barrick Gold Corp.
After Close
22.4
Wed Feb-15
WMB
Williams Companies
After Close
21.8
Wed Feb-15
GG
Goldcorp
After Close
14.2
Wed Feb-15
MRO
Marathon Oil Corp.
After Close
13.6
Wed Feb-15
NTAP
NetApp
After Close
10.9
Wed Feb-15
NLY
Annaly Capital Management
After Close
10.7
Wed Feb-15
CF
CF Industries Holdings
After Close
8.5
Wed Feb-15
KGC
Kinross Gold Corp.
After Close
4.9
Thu Feb-16
MGM
MGM Resorts International
Before Open
16.6
Thu Feb-16
AVP
Avon Products
Before Open
2.6
Thu Feb-16
HIMX
Himax Technologies ADR.
Before Open
1.0
Thu Feb-16
AUY
Yamana Gold Ordinary Shares (Canada)
After Close
3.3
Fri Feb-17
DE
Deere & Company
Before Open
34.8
Mon Feb-20
VIPS
Vipshop Holdings ADRADR
After Close
7.2
Mon Feb-20
CYH
Community Health Systems
After Close
0.7
Tue Feb-21
WMT
Wal-Mart Stores
Before Open
209.3
Tue Feb-21
HD
Home Depot
Before Open
171.8
Tue Feb-21
MDT
Medtronic plcOrdinary Shares
Before Open
105.8
Tue Feb-21
M
Macy's
Before Open
10.0
Tue Feb-21
NEM
Newmont Mining Corp.
After Close
19.6
Tue Feb-21
WLL
Whiting Petroleum Corp.
After Close
3.2
February 14, 2017 Dividend Aristocrats. Dividends are seen by some as a less intriguing way of creating wealth than, say, trading price action; however, over the past 20 years, 50% of the S&P 500's returns have come from dividends rather than price appreciation. Combined with a strategy of selling a call against every 100 shares owned, we can theoretically reduce cost basis even further.
cut in dividends; this sequence of events, in turn, can result in further price decline due to overarching instability. See where we are going with this? The idea behind the "Dividend Aristocrats" refers to stocks whose management has increased their dividends for the last 25 years – the focus then becomes one pertaining less to the actual dividends and more to the financial stability of the company. Traders looking to add some long delta might consider a covered call strategy on one or more of these “Dividend Aristocrats,” by which they would be reducing cost basis on two ends. The strategy is not without risk, though, as dividend stocks tend to act more like bonds than the overall market. Possible raises in interest rates would decrease bond prices and create a drag in dividend stocks. There is also the risk that the stock decreases or cancels their dividend. All the more reason why we like to sell calls against shares held – to reduce our cost basis and therefore increase our theoretical probability of success.
Be that as it may, we do not necessarily advocate for seeking out and buying stocks with the highest dividend yields. Dividend yields of 10% and greater are not uncommon, but these are usually associated with large declines in share price rather than the generosity of the company. Declines in price can also coincide with poor earnings, which often leads to a Description Coca-Cola (KO) AT&T (T) IBM (IBM) Target (TGT) Caterpillar (CAT) Exxon (XOM) McDonalds (MCD) Procter & Gamble (PG) Johnson & Johnson (JNJ)
Market Cap. 175 Billion 250 Billion 171 Billion 37 Billion 57 Billion 343 Billion 104 Billion 225 Billion 316 Billion
Possible Candidates. Below we provide a few trade ideas. The Buying Power Reduction shown is the result of buying 100 shares and selling an OTM call. Michael Rechenthin, PhD Frank Kaberna [email protected]
Div. Yield 3.5% 4.7% 3.1% 3.7% 3.2% 3.6% 3.0% 3.0% 2.8%
IV/ IV Rank 13 / 12 16 / 18 17 / 9 28 / 44 23 / 8 16 / 1 17 / 13 16 / 23 13 / 6
Buying Power Reduction $2,000 $1,950 $8,900 $3,150 $4,770 $4,100 $6,100 $4,050 $5,650
Reading this Report Expected Range Cone. The following pages show stocks and ETFs that the tastytrade Research Team currently find have relatively high or low volatility. The colored cone represents a 30-day expected theoretical price range that is calculated from the options’ implied volatilities. If the implied volatility is relatively high, then the market is expecting a larger price change in the underlying stock or ETF. From this we can derive the market’s 1 standard deviation theoretical expectation of where prices might be in the future. In other words, the market is expecting, with a 68% theoretical probability, that prices will fall within the boundary of the cone at the end of 30 days.
Cone Color. The color of the cone is significant. The darker the color, the
more “extreme” the implied volatility (IV) which is represented by implied volatility rank (IV Rank). This information can help you decide on a trading strategy.
Glossary IV. Implied Volatility is the estimated volatility of a security’s price derived from its option price; the higher the IV, the more expensive the
option and therefore the larger the expected price move. IV is an annualized number of volatility, e.g. a IV of 27 means the option’s market is pricing in an annualized price range, either plus or minus, of 27%.
IV Rank. IV by itself doesn’t tell us if if the volatility is high or low - but IV Rank does. An IV Rank of 70 means that the IV is 70% between its low and high IV over the past year. The higher the IV Rank, the higher the security’s IV is compared to its past year. We provide six levels to make evaluating easier: • Extremely High: IV Rank between 90 and 100 • High: IV Rank between 75 and 90 • Moderately High: IV Rank between 50 and 75 • Moderately Low: IV Rank between 25 and 50 • Low: IV Rank between 10 and 25 • Extremely Low: IV Rank between 0 and 10
Option Liquidity. At tastytrade we have our own theoretical measure of option liquidity, Poor, Moderate, Good, or Great. It examines the options’ bid/ask spread, open interest, and the number of strikes with non-zero bids.
Correlation with S&P 500. Correlation is a statistical measure of how strong a relationship two securities have with one another. A correlation of -1 means the stocks are perfectly negatively correlated (they move in opposite directions), while a correlation of +1 means the stocks are perfectly positively correlated (they move in the same direction). A correlation of 0 means there exist little relationship.
Earnings. The earnings date of the security. In practice we tend to see stocks have a larger amount of implied volatility (IV) nearer to
earnings as the market is pricing in the fear of the upcoming earnings announcement. In parethesis, is BTO or AMC; "Before the Open" or "After Market Closes", respectively. Upcoming earnings dates do sometimes change.
Disclosures tastytrade content is provided solely by dough, Inc., and is for informational and educational purposes only. All volatility, probability, liquidity and correlation numbers are purely theoretical in nature, and are for illustrative purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures, transaction or investment strategy is suitable for any person. Options are not suitable for all investors as the special risks inherent to options trading may expose investors to potentially rapid and substantial losses. tastytrade or its parent, dough, Inc., does not provide investment or financial advice or make investment recommendations, nor is either in the business of transacting trades, nor does it direct client commodity accounts or give commodity trading advice tailored to any particular client’s situation or investment objectives.
This is our broad view of the market ranging from stocks to bonds to currencies.
Exchange-traded funds (ETFs) are securities that trade like stock while tracking indices, commodities, bonds, and baskets of assets. We are tracking these ETFs because of the opportunity that they present and the liquidity that they exhibit.
These are a few of the individual stocks that we have on our radar. Always be aware of expected earning date when choosing your expiration. Individual stocks do have more risk of sudden moves - make sure you are compensated for the risk.
Earnings trades offer investors opportunities in stocks with the largest potential of a volatility contraction the day after a company announces their quarterly earnings report. For trade ideas watch "In the Hot Seat with Pete" daily at 2:00pm CST.
Expected Date
Symbol
Description
Release Time
Market Cap (Billions)
Tue Feb-14
TMUS
T-Mobile US
Before Open
50.3
Tue Feb-14
AIG
American International Group New
After Close
68.3
Tue Feb-14
ESRX
Express Scripts Holding Company
After Close
43.0
Tue Feb-14
DVN
Devon Energy Corp.
After Close
23.6
Wed Feb-15
PEP
Pepsico
Before Open
152.4
Wed Feb-15
GRPN
Groupon
Before Open
2.2
Wed Feb-15
CSCO
Cisco Systems
After Close
160.4
Wed Feb-15
AMAT
Applied Materials
After Close
38.0
Wed Feb-15
CBS
CBS CorpClass B
After Close
28.1
Wed Feb-15
ABX
Barrick Gold Corp.
After Close
22.4
Wed Feb-15
WMB
Williams Companies
After Close
21.8
Wed Feb-15
GG
Goldcorp
After Close
14.2
Wed Feb-15
MRO
Marathon Oil Corp.
After Close
13.6
Wed Feb-15
NTAP
NetApp
After Close
10.9
Wed Feb-15
NLY
Annaly Capital Management
After Close
10.7
Wed Feb-15
CF
CF Industries Holdings
After Close
8.5
Wed Feb-15
KGC
Kinross Gold Corp.
After Close
4.9
Thu Feb-16
MGM
MGM Resorts International
Before Open
16.6
Thu Feb-16
AVP
Avon Products
Before Open
2.6
Thu Feb-16
HIMX
Himax Technologies ADR.
Before Open
1.0
Thu Feb-16
AUY
Yamana Gold Ordinary Shares (Canada)
After Close
3.3
Fri Feb-17
DE
Deere & Company
Before Open
34.8
Mon Feb-20
VIPS
Vipshop Holdings ADRADR
After Close
7.2
Mon Feb-20
CYH
Community Health Systems
After Close
0.7
Tue Feb-21
WMT
Wal-Mart Stores
Before Open
209.3
Tue Feb-21
HD
Home Depot
Before Open
171.8
Tue Feb-21
MDT
Medtronic plcOrdinary Shares
Before Open
105.8
Tue Feb-21
M
Macy's
Before Open
10.0
Tue Feb-21
NEM
Newmont Mining Corp.
After Close
19.6
Tue Feb-21
WLL
Whiting Petroleum Corp.
After Close
3.2
