WFC Analysis

Wells Fargo & Co. (WFC)

Update 1/31/2017: WFC remained steady after earnings were published, and then rose a little. Implied volatility fell, and then retraced a portion of the decline. I exited for less than my profit target in order to avoid early assignment when the stock goes ex-dividend on Feb. 1.

Shares rose by 1.43% over 25 days, or a +21% annual rate. The options position produced a +21.9% yield on debit for a +319% annual rate.

I shall use the FEB series of options, which trades for the last time 42 days hence, on Feb. 17.

Implied volatility stands at 26%, which is 2.3 times the VIX, a measure of the volatility of the S&P 500 index.

WFC’s IV stands in the 42nd percentile of its annual range and the 82nd percentile of its most recent broad movement.

Premium: $1.95 FEB iron fly
WFC Strike Odds Delta
Long 57.50 68.5% 28
Break-even 56.95
Short 55.00 48.0% 48
Short 55.00 48.6% 49
Break-even 53.05
Long 52.50 72.6% 30

The price used for analysis was $55.24.The premium is 78% of the width of the position’s wings.

The risk/reward ratio is 0.3:1.

Decision for My Account

The position is fairly unbalanced, to the reward side, in terms of risk/reward. Even so, I have entered a position on WFC as described above. The stock at the time of entry was priced at $55.15.

Tim Bovee, Portland, Oregon, Jan. 6, 2017

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