HPE Analysis

Hewlett Packard Enterprise Co.  (HPE)

HPE publishes earnings on Wednesday after the closing bell.

I shall use options that trade for the last time nine days hence, on June 9.

Implied volatility stands at 31%, which is 2.8 times the VIX, a measure of the volatility of the S&P 500 index.

HPE’s IV stands in the 17th percentile of its annual range and the 98th percentile of its most recent broad movement. A series of large volatility spikes in late March and early April brought the annual range percentile down.

The price used for analysis was $18.83.

Premium: $0.85 Expire OTM  
HPE-iron fly Strike Odds Delta
Long 20.00 80.1% 20
Break-even 19.85
Short 19.00 56.8% 46
Short 19.00 43.3% 54
Break-even 17.85
Long 17.00 86.4% 12

The premium is 57% of the width of the position’s wings.

The risk/reward ratio is 1.4:1.

Decision for My Account

The grid is formed in such a way that I can’t get decent coverage on the call side, leading to a distorted structure for the trade. That in turn leads to an unacceptably high risk/reward ratio. I am passing on the HPE trade.

By Tim Bovee, Portland, Oregon, May 31, 2017


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