LB Analysis

L Brands Inc. (LB)

Update 5/20/2017; LB gapped sharply to the downside immediately upon the publication of earnings, recovered about half the decline, moved further to the downside and then returned several times to the 50% retracement level. I exited the bear call spread portion of the position on May 15, allowing the bull put spread side to expire without value on May 20.

During the lifepsan of the position, shared rose by a net 43.1% over 53 days, or a +297% annual rate. The options position produced a +4.2% yield on debit for a +29% annual rate.

LB has sufficiently high implied volatility by several measures to support a trade.

I shall use the MAY series of options, which trades for the last time 52 days hence, on May 19.

Implied volatility stands at 31%, which is 2.7 times the VIX, a measure of the volatility of the S&P 500 index.

LB’s IV stands in the 52nd percentile of its annual range and the 39th percentile of its most recent broad movement.

The price used for analysis was $47.51.

Premium: $2.75 Expire OTM  
LB – iron condor Strike Odds Delta
Long 52.50 86.2% 11
Break-even 50.25
Short 47.50 54.6% 51
Short 45.00 62.2% 33
Break-even 42.25
Long 40.00 81.8% 22

The premium is 55% of the width of the position’s wings.

The risk/reward ratio is 0.8:1.

Decision for My Account

I entered a position on LB as described above. The stock at the time of entry was priced at $47.52

By Tim Bovee, Portland, Oregon, March 28, 2017

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