KO Analysis

The Coca-Cola Co. (KO)

KO publishes earnings on Tuesday before the opening bell.

I shall use the series of weekly options that trade for the last time 11 days hence, on May 5.

Implied volatility stands at 14%, which is 1.2 times the VIX, a measure of the volatility of the S&P 500 index.

KO’s IV stands in the 39th percentile of its annual range and the 67th percentile of its most recent broad movement.

The price used for analysis was $43.33.

Premium: $0.88 Expire OTM
KO-iron fly Strike Odds
Calls
Long 45.00 90.9%
Break-even 44.38
Short 43.50 55.3%
Puts
Short 43.50 44.1%
Break-even 42.62
Long 41.50 88.2%

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

The risk/reward ratio is 1.8:1.

Decision for My Account

The risk/reward ratio is higher than I like for this trade structure. Generally for an iron fly I am reluctant to go higher than 1.2:1.  For that reason, I am passing on the trade. The stock at the time of decision was priced at $43.39.

By Tim Bovee, Portland, Oregon, April 24, 2017

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