The Goldman Sachs Group Inc. (GS)
Update 1/9/2017: GS’s implied volatility did indeed fall, although the price traded within a narrow range.The lower IV combined with the working of time decay in my favor produced a tidy profit.
GS shares rose by 0.9% over 31 days, or a +10% annual rate. The options position produced a 110.5% yield on debit for a +1,301% annual rate.
GS has relatively high implied volatility after a sharp price rise over the past month and I’m looking for an IV reversion to the mean.
I shall use the JAN series of options, which trades for the last time 42 days hence, on Jan. 20.
Implied volatility ist 31%, which stands in the 32nd percentile of its annual range and the 72nd percentile of the most recent broad move. The price used for analysis was $240.35.
Iron condor, short the $255 calls and long the $260 calls,
short the $225 puts and long the $220 puts,
sold for a credit and expiring Jan. 21.
Probability of expiring out-of-the-money
The premium is $2.00, which is 40% of the width of the position’s wings.
The risk/reward ratio is 1.5:1.
Decision for My Account
I have entered a position on GS as described above. The stock at the time of entry was priced at $240.57.
By Tim Bovee, Portland, Oregon, Dec. 9, 2016