THE HARWOOD REPORT. To start, we will look through the equity chart for DE to see what we think the market should do next:

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Shavonne Payne
5 years ago
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Stocks Highlighted The market is very stable to start the week with light outperformance by the Technology sector and underperformance in Small Cap names.

1 Stocks Highlighted The market is very stable to start the week with light outperformance by the Technology sector and underperformance in Small Cap names. Given this, we will return our focus to looking for continuation of trends and breakouts on both the upside and downside. With this in mind, we highlight DE and GIS in today s report. DE Deere & Co Technical Chart To start, we will look through the equity chart for DE to see what we think the market should do next: DE is roughly 1 standard deviation away from 52-week highs and found strong buyers near $122. At this point, I expect to see a push for that new 52-week high which could drive the stock into the $130s fairly quickly. Our big benefit will be if we can express this view with cheap Implied Volatility in options. Option Volatility Now we will dive into the option metrics that can be used to formulate a trade here. The first step is to look at the Implied and Historical Volatility to see where we are relative to recent history: For Educational and Information Purposes Only

After earnings, the Implied Volatility level has been stable around 16%. Realized Volatility has now been increasing toward that level which is a key factor in getting our long Gamma play to work.

Options Market Structure Putting this all together, we can now look at the options market to see what expiration we may want to focus on as we put together the final trade construction.

2 After earnings, the Implied Volatility level has been stable around 16%. Realized Volatility has now been increasing toward that level which is a key factor in getting our long Gamma play to work. For now, it appears that long Vega is very safe and long Gamma will work in the case of a breakout where I expect to see a pickup in volatility. Options Market Structure Putting this all together, we can now look at the options market to see what expiration we may want to focus on as we put together the final trade construction. The first things we will want to look at are the term structure of Implied Volatility and then the Open Interest in strikes that are close to expiration. Screenshot from LiveVol For our trade, July expiration is where we will want to focus. A 1 standard deviation move would price DE right around $130 over the course of two weeks, so I will be 2

3 looking to play this for a move to, but not necessarily through, $130. We should also note here the large Open Interest on the July $130 strike. That could create a natural magnet for the stock price and helps support our view of playing for a move to $130 in this name. The Trade Looking for a move to $130 over the course of the next 2 weeks sets us up for the July $128 calls. We could also look at a call spread to reduce the total premium, but in our case, I want to leave my upside uncapped in case I am wrong and $130 is just the beginning. With Implied Volatility this cheap, I would rather leave the upside open. Today, I will be looking at the July $128 calls for $

GIS General Mills Inc. Technical Chart To start, we will look through the equity chart for GIS to see what we think the market should do next: This chart is ugly.

4 GIS General Mills Inc. Technical Chart To start, we will look through the equity chart for GIS to see what we think the market should do next: This chart is ugly. Earnings could not get the stock to rally and now GIS is making new lows on a daily basis. At this point, the path of least resistance is down as every long is losing money. The key for us to be able to play this will be if options are cheap enough to play for a move to or through $50 in the coming weeks. Option Volatility Now we will dive into the option metrics that can be used to formulate a trade here. The first step is to look at the Implied and Historical Volatility to see where we are relative to recent history: 4

All-in-all, this looks like a name we can play with options.

5 Implied Volatility is near lows of the last 6 months and Realized Volatility is in line. There are stocks with lower Implied Volatility relative to historical norms, but with Realized Volatility in line, I am less concerned that there would be much downside to long Vega and long Gamma. All-in-all, this looks like a name we can play with options. Options Market Structure We will again look at the Implied Volatility levels for each expiration and then review the Open Interest to determine where we will want to place the option positioning. Screenshot from LiveVol With no weeklies and no dollar strikes, the choices here are limited. But, August is the lowest Implied Volatility in the term structure and gives us some time to play for a significant break. Over the 6 weeks, a 1 standard deviation move would put GIS right at $50, so while those puts look very dollar cheap, we will want to play with the $52.5 5

6 puts instead to increase our probability of success. If the stock breaks with Implied Volatility decreasing, we can look to roll, but for now, the better play for our thesis is the $52.5 put. There is little of interest in terms of Open Interest in the August expiration. That will not be a major factor in our trade decision. The Trade As mentioned, there s really only one option for us given our desire to play for a move to $50. Today, I will be looking at the August $52.5 put for $0.74. Good luck to all and if you want more help with understanding options, risk management, or trade construction, keep an eye on the Trade Academy Course Offerings which will be coming soon! 6

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THE HARWOOD REPORT. To start, we will look through the equity chart for WTW to see what we think the market should do next:

THE HARWOOD REPORT. To start, we will look through the equity chart for WTW to see what we think the market should do next: Stocks Highlighted With the market more stable to start the day, my focus will be on two names that have been trending. I expect these names to continue their trends after breaking out yesterday. With