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.
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