CSX Corp. (CSX)
Update 1/11/2017: CSX remained within its profit zone until nine days before expiration, when it broke above of its =trading narrow range and came very close to becoming unprofitable. I chose to eliminate the risk by exiting at 6.6% of maximum potential profit.
Shares rose by 3.8% over 28 days, or a +49% annual rate. The options position produced a 7.0% yield on debit for a +92% annual rate.
I’m looking at CSX as a potential volatility play.
I shall use the JAN series of options, which trades for the last time 37 days hence, on Jan. 20.
Implied volatility stands at 29%, which stands in the 35th percentile of its annual range and the 77th percentile of its most recent broad movement. The price used for analysis was $36.82.
Iron condor, short the $38 calls and long the $40 calls,
short the $35 puts and long the $33 puts,
sold for a credit and expiring Jan. 21.
Probability of expiring out-of-the-money
The premium is $0.76, which is 36% of the width of the position’s wings.
The risk/reward ratio is 1.6:1.
The zone of profit in the proposed trade covers a $1.50 move either way.
Decision for My Account
I have opened a position on CSX as described above. The stock at the time of entry was priced at $36.69.
Tim Bovee, Portland, Oregon, Dec. 14, 2016