The Timken Company (TKR), Trending Stock Report

The Timken Company (TKR) is probably the world’s most boring stock. The company makes bearings.

The most interesting thing about this boring company is that the stock prices are compressed, with a history of making big moves after a compression signal. In other words, it looks like this boring stock is about to explode!

You can see in the chart below how the stock behaved after prior compression signals. There was one other pretty spectacular trade in October of 2022. We just didn’t have the space to show it here. Another thing that these probability cones tell us is that if the stock does break outside of the one standard deviation probability cone, you probably want to take profits on the option with the most value. We will show you how to monitor the trade on the next page.

This chart shows the ODDS Probability Cones in ODDS Online. You can use this probability cone to help identify an exit point for the TKR trade idea. If the stock breaks out above or below the blue probability cone before the options expire, you would take profits on the profitable options. Specifically, if it breaks out above the blue cone, you would take profits on the calls. If it breaks out below the blue cone, you would take profits on the puts. We will discuss this in more detail in Tuesday’s ODDS Online Coaching session.

This Volatility Term Structure for TKR shows us the implied volatility for the at-the-money options for each expiration. To learn more about Volatility Term Structure, click here. The volatilities at each term are pretty flat. We are interested in the October 18^th expiration because it gives us time as the stock price tends to anticipate earnings, but going out past earnings with a slightly higher implied volatility pushes the options prices into slightly expensive territory.

This MDM graph compares the modeled expectations of current options prices (the orange line) to the actual movement of TKR’s stock price over the past 4 years. This graph tells us that TKR makes large moves more frequently than modeled options prices expect. That is good news for option buyers.

TKR’s stock prices are compressed. The stock has a history of making big moves shortly after a compression signal. The stock’s direction after a compression signal is unpredictable. Because of that, we will only have a neutral strategy in our trade idea this morning.

To get the specific details and prices on today’s trade idea, be sure to read today’s ODDS Online Daily Option Trade Idea.