GPS Analysis

Gap Inc. (GPS)

Update 5/19/2017: GPS had declined for six trading days prior to the earnings announcement, and declined again the day after earnings were published.

In the one day I was in the position, shares fell by 3.8%, or a -1,386% annual rate. The options position produced a 28.1% yield on debit for a +13,919% annual rate.


GPS publishes earnings on Thursday after the closing bell.

I shall use the series of monthly options that trade for the last time eight days hence, on May 26.

Implied volatility stands at 45%, which is 2.9 times the VIX, a measure of the volatility of the S&P 500 index.

GPS’s IV stands in the 41st percentile of its annual range and the 89th percentile of its most recent broad movement.

The price used for analysis was $23.24.

Premium: $1.63 Expire OTM  
GPS-iron fly Strike Odds Delta
Long 27.00 87.6% 15
Break-even 24.63
Short 23.00 48.7% 55
Puts
Short 23.00 50.4% 45
Break-even 21.63
Long 20.00 89.6% 8

The premium is 47% of the width of the position’s wings.

The risk/reward ratio is 0.8:1.

Decision for My Account

I have entered an order on GPS as described above. The stock at the time of entry was priced at $23.18

By Tim Bovee, Portland, Oregon, May 18, 2017

2 thoughts on “GPS Analysis

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