Plains All American Pipeline LP (PAA)
PAA publishes earnings on Monday after the closing bell.
I shall use the series of weekly options that trade for the last time 11 days hence, on May 19.
Implied volatility stands at 28%, which is 2.8 times the VIX, a measure of the volatility of the S&P 500 index.
PAA’s IV stands in the 28th percentile of its annual range and the 76th percentile of its most recent broad movement.
The price used for analysis was $28.44.
I chose the iron condor structure (with a gap between the short strikes) because there was no identical call/put strike with deltas of near 50. That gap inevitably raises the risk.
The premium is 35% of the width of the position’s wings.
The risk/reward ratio is 1.9:1.
Decision for My Account
I am passing on the trade. The high risk compared to reward makes it less attractive for a short-term play such as this.
By Tim Bovee, Portland, Oregon, May 8, 2017