GLNG Analysis

Golar LNG Ltd. (GLNG)

Update 6/9/2017: GLNG declined for seven trading days after earnings were published. It bumped up a dollar to the upside on June 9, but with expiration a week away I judged that it had insufficient chance of reaching profitability, and so I exited for a loss.

Shares declined by 13.0% over 10 days, or a -476% annual rate. The options position produced a 53.8% loss on debit for a -1,967% annual rate

GLNG publishes earnings on Wednesday before the opening bell.

I shall use options that trade for the last time 17 days hence, on June 16.

Implied volatility stands at 51%, which is five times the VIX, a measure of the volatility of the S&P 500 index.

GLNG’s IV stands in the 15th percentile of its annual range and the peak percentile of its most recent broad movement. The annual range peak was reached in July 2016, nearly a year ago, so what we’re seeing today is a volatility recovery within a long-running downtrend.

The price used for analysis was $35.88.

Premium: $0.95 Expire OTM  
GLNG-iron condor Strike Odds Delta
Long 30.00 92.1% 10
Break-even 28.45
Short 27.50 72.9% 31
Short 25.00 59.2% 36
Break-even 23.45
Long 22.50 84.3% 15

The premium is 0.85% of the width of the position’s wings.

The risk/reward ratio is 1.6:1.

Decision for My Account

I have entered an order on GLNG as described above. The stock at the time of entry was priced at $25.84.

The grid was difficult to work with. It’s extremely sparse, with only a few strikes that are tradable. And the intervals between the strikes are about 10% of the stock price, which is extremely wide.

Moreover, there were no strikes with deltas close to 50%, the at-the-money point, making it impossible to use my preferred iron fly structure.

Even so, I was able to get a 1.6:1 bid/ask spread on an iron condor, which is not bad. So I went with the trade.

By Tim Bovee, Portland, Oregon, May 30, 2017

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