LB Analysis

L Brands Inc. (LB)

Update 5/22/2017: LB rose after earnings were published and then quickly declined. The price appeared to be settling into a sideways pattern. I judged there was little likelihood of significant movement going forward and chose to take my money out of risk, exiting at 18.4% of maximum potential profit.

Shares showed a net rise of 2.0% over five days, or a +143% annual rate. The options position produced a 22.6% yield on debit for a +1,646% annual rate

LB publishes earnings on Wednesday after the closing bell.

I shall use the series of monthly options that trade for the last time 30 days hence, on June 16.

Implied volatility stands at 47%, which is 3.2 times the VIX, a measure of the volatility of the S&P 500 index.

LB’s IV stands at the peak of both its annual range and its most recent broad movement.

The price used for analysis was $48.13.

Premium: $5.87 Expire OTM  
LB-iron fly Strike Odds Delta
Long 57.50 94.3 7
Break-even 53.37
Short 47.50 49.2% 56
Short 47.50 50.2% 44
Break-even 45.87
Long 40.00 86.9% 10

The premium is 67% of the width of the position’s wings.

The risk/reward ratio is 0.7:1.

Decision for My Account

This was a tricky grid to work with, given the $5 intervals between strikes with a such a low-priced stock. Nonetheless, I have entered a position on LB as described above. The stock at the time of entry was priced at $48.20.

By Tim Bovee, Portland, Oregon, May 17, 2017

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