Dollar General Corp. (DG)
Update 6/2/2017: DG gapped to the upside after earnings were published and continued to rise the next day. I took the loss with a week left before expiration.
Shares rose b7 9.3% over two days, or a +1,699% annual rate. The options position produced a -37.7% loss on debit for a -6,888% annual rate.
DG publishes earnings on Thursday before the opening bell.
I shall use options that trade for the last time nine days hence, on June 9.
Implied volatility stands at 32%, which is 2.9 times the VIX, a measure of the volatility of the S&P 500 index.
DG’s IV stands in the 63rd percentile of its annual range and the 98th percentile of its most recent broad movement.
The price used for analysis was $71.84.
Premium: | $3.86 | Expire OTM | |
DG-iron fly | Strike | Odds | Delta |
Long | 79.50 | 92.4% | 9 |
Break-even | 75.86 | ||
Short | 72.00 | 52.3% | 51 |
Puts | |||
Short | 72.00 | 47.6% | 49 |
Break-even | 67.86 | ||
Long | 64.00 | 90.8% | 8 |
The premium is 50% of the width of the position’s wings.
The risk/reward ratio is 1.1:1.
Decision for My Account
I have entered an order on DG as described above. The stock at the time of entry was priced at $71.86
By Tim Bovee, Portland, Oregon, May 31, 2017
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