CBI Analysis

Chicago Bridge & Iron Co. N.V.  (CBI)

Update 8/14/2017: CBI fell by $6 after coming in with earnings at $3.02 per share, well below the $0.30 Street consensus. It rose by $2 over the subsequent two trading days, when I exited at $3.35 for a loss, with shares at $12.45. 

Shares declined by a net $25.1% during my seven-day holding period, or a -1,306% annual rate. The options position produced a -35.9% loss on debit for a -1,868% annual rate.

Had I exited the day after earnings were published, I would have gotten out with the stock at the same level as today, and with the option going for a debit of about $3.68. Tactically, waiting until closer to expiration cut $0.33 from my loss, thanks to the workings of  time decay.

CBI publishes earnings on Monday after the closing bell.

I shall use options that trade for the last time 11 days hence, on Aug. 18.

Implied volatility stands at 94%, which is 9.2 times the VIX, a measure of the volatility of the S&P 500 index.

CBI’s IV stands in the the peak of both its annual range and its most recent broad movement.

The price used for analysis was $16.46.

Premium: $2.15 Expire OTM  
CBI-iron fly Strike Odds Delta
Long 20.00 85.3% 20
Break-even 18.15 ~69.4% ~38
Short 16.00 45.80% 62
Short 16.00 53.3% 39
Break-even 14.15 ~74.5 ~19
Long 12.00 87.3% 8

The premium is 2.15% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

Decision for My Account

The trade is a bit skewed, given the nature of the grid and a price shift just as I pressed the button. Nonetheless, I have entered an order on CBI as described above. The stock at the time of entry was priced at $16.61.

By Tim Bovee, Portland, Oregon, Aug. 7, 2017


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.

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