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 |
Calls | |||
Long | 57.50 | 68.5% | 28 |
Break-even | 56.95 | ||
Short | 55.00 | 48.0% | 48 |
Puts | |||
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
[…] entered an earnings play on WFC and exited no […]
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[…] holdings, PFE and WFC, go ex-dividend on Wednesday, and I exited for less than my profit goal in order to avoid early […]
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