YUMC Analysis

Yum China Holdings Inc. (YUMC)

Update 7/24/2017: YUMC gapped downward after earnings were published and quickly returned to about the midpoint of the gap, making the position profitable. I exited  at 8% of maximum potential profit, below my 25% target, well before expiration to clear my account for other trades.

Shares declined by 6.3% over 19 days, or a -120% annual rate. The options position produced an 8.9% yield on debit for a +170.8% annual rate.


YUMC publishes earnings on Wednesday after the closing bell.

I shall use options that trade for the last time 16 days hence, on July 21.

Implied volatility stands at 41%, which is 3.6 times the VIX, a measure of the volatility of the S&P 500 index.

YUMC’s IV stands in the 16th percentile of its annual range, due to an initial public offering spike last November, and the 91st percentile of its most recent broad movement.

The price used for analysis was $39.70.

Premium: $3.43 Expire OTM  
YUMC-iron fly Strike Odds Delta
Long 47.50 93.4% 8
Break-even 43.43
Short 40.00 54.2% 50
Puts
Short 40.00 45.7% 50
Break-even 35.93
Long 32.50 91.3% 7

The premium is 46% of the width of the position’s wings.

The risk/reward ratio is 1.2:1.

Decision for My Account

I have entered an order on YUMC as described above. The stock at the time of entry was priced at $39.74.

By Tim Bovee, Portland, Oregon, July 5, 2017

Disclaimer

Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.

No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.

License
Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

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