Our site is pretty easy to understand, for me that is.
Speaking to a pretty smart reader while looking at the site last night, I came to realize that even he was challenged by more than his short attention span.
I wanted to share with you:
A) How we operate
B) A quick tour of the structure of the Blog posts
C) How to read the posts
A) How we operateWe share trade analysis on our site that we use for our investing.
The stuff we Post is the final evaluation/analysis.
An analyst looks over the possible scenarios and chooses the two scenarios that make the most sense in terms of income and risk management.
The information is then used by our managers and traders to guide them in deciding 1) do they want to enter into a trade with this particular stock, and 2) which Buy/Write strategy to employ.
Step one involves analysis outside the information provided on this site. This includes internal and "Street" research. We also consider portfolio risk exposure, guidelines and sector exposures.
If we agree to a trade we then move to step 2 and choose from the scenarios provided by the two choice page that we post on this site (see below). We rely on this analysis to be correct and that the analyst has chosen to show the "best of" choices of calls to sell. Often the manager and trade re-price the trades to the current market to test the accuracy and update the analysis to a changed market.
So far this has worked very well for us and we hope for you our readers.
As always we are available to offer individual readers analysis as our time allows. You can e-mail us the stocks you want analyzed at AddingAlpha@Consultant.com
Looking over a typical Trade Analysis posting is a skill.
Clearly not a skill possessed by all our readers as Mr. ADD demonstrated to me last night (ADD = Attention Deficit Disorder)
So let's go over what is being presented in any of blog postings labeled Trade Analysis:* AT THIS POINT IT MIGHT BE HELPFUL TO HAVE A BLOG PAGE OPENED BESIDE THIS PAGE AS YOU READ ON TO HELP BETTER UNDERSTAND WHAT I AM TRYING TO DESCRIBE *
B) A quick tour of the structure of the Blog postsThe posts are organized or rather should be organized as follows:
1) List of stocks analyzed in that particular posting with ticker symbol and name
2) VIX and S&P 500 levels at the time the analysis was performed
3) Our standard note about how you need to do some work if you want to buy any of these stocks or do any of the trade shown and how we might own any of these trades.
4) Three Group pages (described in detail below)
5) Individual stock scenario analysis (described in detail below)
C) How to read the postsThe posts have a structure that does not vary too much from post to post.
There are usually 4 basis elements to each post: 1) List of stocks analyzed, 2) Comments on the analysis, 3) Group listings beginning with an Alpha sort, SSR sort and Days earnings sort and 4) Posting of the individual stock analysis.
1) List of stocks analyzed
The first part of a post is the list of stocks we reviewed or provide trade analysis. The list sometimes has comments from a team member that describe the results or point out some interesting observations.
2) Comments on the analysis
We do not always include comments. At times we are taxed by time constraints and must balance our desire to share our analysis with writing observations.
Overall, our strategy is to use closing prices for analysis. This means someone must get their work done, all the trade analysis on all the chosen stocks, from the time after the market closes in the later afternoon to before the market opens again in the morning. (This is also known as after hours work and we do not pay overtime!) Doing this analysis while the market is closed gives us the ability and luxury of time to look at all the chosen stocks and not worry about changing prices.
Granted, off hour pricing is subject to live market changes when the market opens, however, we find that the opening price changes are not always that big and the grater value is in working in the off hour pricing vacuum. The dynamics between the underlying stock price and the options premiums tend to stay relatively constant and once the market opens our traders can bid back the market to improve on the approved trade.
Therefore, if the analyst doing the work chooses to complete their assignments in the morning there is little time to write commentary and post the analysis before the market opens (read: they checked out before their work was done and tried to get it done before the market opened!). We like to share the information on the blog before the market opens when possible.
3) Group listings beginning with an Alpha sort, SSR sort and Days earnings sort
We analyze several stocks at one time. These stocks are analyzed in groups and individually. Typically we do the individual stock analysis first then aggregate the information to look for anomalies or additional opportunities.
When we display the information on the blog we start with the group lists.
The first list is an Alpha sort by ticker of the stocks with their individual valuation, historic and Industry/Sector information.
The second list shows the group sorted/ranked by Stand Still Return (SSR) and the third list is sorted by Days earnings.
It is important to note that the SSR and Days earning sorts are driven by the individual stock analysis pages. Therefore, the options used for the analysis may not be the same for all the stocks shown. Convoluted as it this sounds it is an important fact. We look at at least two scenarios for each stock as shown on the individual stock analysis pages. The group stock pages choose the best of the individual stock analysis to show. So if the best strategy for the first stock is to sell a near dated option while the best strategy for another stock is to sell a far dated option there is no distinction on the group page. We try to display the expiration dates but rely on the reader to use their judgment and look into the trades on the individual stock analysis pages following.
4) Posting of the individual stock analysis
This is the result of the detailed work of our analyst. These are presented in ticker - alpha order below the group pages. Each individual stock page can be reviewed individually. This is done by right clicking the page with the mouse and then choosing to open it in a separate window. You can also print the pages individually.
Structure of individual stock pages:
The top part of the page identifies the stock and provides some valuation and dividend information.
The middle part of the page shows the analysis of at least two options our analyst has chosen. The options analysis is shown side by side. The middle column identifies the data specific to the options chosen. This includes the Options expiration date, Strike price and Premium earned.
We then display the pricing information. This begins with the potential of a dividend being paid while the individual option is held, the Net income earned from selling the options (this can vary if the option is "in" or "out" of the money).
The analysis that follows is related to the relationship of the Sport price of the stock and the net options Premium.
The SSR is the Stand Still Return or the potential yield that can be earned by selling the suggested call and any dividend paid.
The Days is the number of days from the date of the suggested trade to the date of the options expiration.
The Ratio is a comparison of expected earnings of each scenario relative to the other.
Days earning is how much income the individual trades earns per day expressed in basis points (bps).
Breakeven is the spot price adjusted by the premium earned, Downside % is the same thing expressed in % terms.
Call Spot is the lowest stock price where the seller of the call is indifferent to calling the stock or exercising their right to take the stock away from the call seller (you). Return if called is the returned earned if the stock were called at the Call Spot.
The RVI series are Relative Value Index of the indicated price to the previous 52 week high and low trading range prices. The 52 week prices are displayed immediately below. The RVI numbers show the relative pricing of the stock to historic pricing. Users are often curious about pricing and this provided a quick analysis. For example, if the stock is trading at its 52 week high the RVI for Spot would be 100%, if it were trading at its low the RVI would be 0%. If the stock were at the middle of its trading range the RVI would be 50%. The RVI's for Strike and Call can be above 100% if those values are above the 52 week trading range.
Finally the last data sets are related to the underlying stock's 52 week trading range.
