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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