General Mills Inc. (GIS)
GIS publishes earnings on Tuesday before the opening bell.
Update 12/27/2016: GIS dropped after earnings were published but recovered to near the strike price within a few days. I exited at 25% of maximum profit, my standard goal for positions of this sort.
Shares declined by 1.2% over eight days, or a -56% annual rate. The options position produced a 29.34% yield on debit for a +1,339% annual rate.
I shall use the JAN series of options, which trades for the last time 32 days hence, on Jan. 20.
Implied volatility stands at 27%, or 2.3 times the VIX, a measure of volatility on the S&P 500. Volatility is in the 80th percentile of its annual range and at the peak of its most recent broad move. The price used for analysis was $63.00.
Iron fly, short the $62.50 calls and long the $67.50 calls,
short the $62.50 puts and long the $57.50 puts,
sold for a credit and expiring Jan. 21.
Probability of expiring out-of-the-money
The premium is $2.68, which is 53% of the width of the position’s wings.
The risk/reward ratio is 0.8:1.
Decision for My Account
I have entered a position on GIS as described above. The stock at the time of entry was priced at $63.03.
— Tim Bovee, Portland, Oregon, Dec. 19, 2016