TDG Analysis

TransDigm Group Inc. (TDG)

TDG publishes earnings on Monday before the opening bell.

I shall use the series of weekly options that trade for the last time 14 days hence, on May 19.

Implied volatility stands at 44%, which is 4.2 times the VIX, a measure of the volatility of the S&P 500 index.

TDG’s IV stands in the 59th percentile of its annual range and the 79th percentile of its most recent broad movement.

The price used for analysis was $255.03.

Premium: $13.90 Expire OTM  
TDG-iron fly Strike Odds Delta
Long 276.00 89.0% 12
Break-even 269.90
Short 256.00 53.6% 50
Short 256.00 46.4% 50
Break-even 229.90
Long 216.00 88.2% 9

The premium is 46% of the width of the position’s wings.

The risk/reward ratio is 1.9:1.

Decision for My Account

I am declining to take the trade. The risk/reward ratio is higher than I like for an iron fly construction. Also, just in terms of absolute dollars, this is an expensive stock and the pricing would expose me to excessive risk relative to my other positions.

By Tim Bovee, Portland, Oregon, May 5, 2017

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