PLAY Analysis

Dave & Buster’s Entertainment Inc. (PLAY)

Update 6/7/2017: PLAY rose after earnings were published. However, my exit order went through one minute after the opening bell, and the price was up only one cent from its level when I entered. It subsequently rose by several dollars. Implied volatility declined sharply, and the exit was at 35.9% of maximum potential profit.

The annual rate of the one cent change in the share price works out to a 0.05% annual rate of change. The options position produced a 56.1% yield on debit for a +20,468% annual rate.


PLAY publishes earnings on Tuesday after the closing bell.

I shall use options that trade for the last time 10 days hence, on June 16.

Implied volatility stands at 48%, which is 4.6 times the VIX, a measure of the volatility of the S&P 500 index.

PLAY’s IV stands in the 63rd percentile of its annual range and at the peak of its most recent broad movement.

The price used for analysis was $69.40.

Premium: $5.65 Expire OTM  
PLAY-iron fly Strike Odds Delta
Long 80.00 89.0% 13
Break-even 75.65
Short 70.00 53.0% 52
Puts
Short 70.00 46.6% 48
Break-even 65.65
Long 60.00 88.3% 9

The premium is 57% 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 PLAY as described above. The stock at the time of entry was priced at $69.63.

By Tim Bovee, Portland, Oregon, June 6, 2017

 

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