LOW Analysis

Lowe’s Companies Inc. (LOW)

Update 4/22/2017: LOW gapped sharply to the upside after earnings were published, moving it into unprofitable territory, where it stayed for the rest of its lifespan. I unwound the position piecemeal, avoiding assignment by exiting the short call spread embedded in the iron fly on April 7 and retaining the short put spread, which was untradeable because of very low premium. The puts expired on April 22.

For the entire life of the position, shares showed a net rise of 3.6% over 53 days, or a +25% annual rate. The options position produced a 31.3% loss on debit for a -216% annual rate.


LOW publishes earnings on Wednesday before the opening bell.

I shall use the APR series of options, which trades for the last time 52 days hence, on April 21.

Implied volatility stands at 267%, which is 2.1 times the VIX, a measure of the volatility of the S&P 500 index.

LOW’s IV stands in the 60th percentile of its annual range and the 77th percentile of its most recent broad movement.

The price used for analysis was $75.06.

Premium: $4.37 Expire OTM iron fly
LOW   Odds Delta
Long 82.50 88.3% 13
Break-even 79.39
Short 75.00 52.3% 51
Short 75.00 47.9% 49
Break-even 70.61
Long 65.00 90.7% 8

The premium is 50% of the width of the position’s wings.

The risk/reward ratio is 1.3:1.

Decision for My Account

I have entered a position on LOW as described above. The stock at the time of entry was priced at $75.13.

By Tim Bovee, Portland, Oregon, Feb. 28, 2017

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