MOMO Analysis

Momo Inc. (MOMO)

Update 8/28/2017: MOMO met earnings expectations but even so, declined by $9 after publication. It moved in a slight uptrend for three days afterward, before falling another $3 and then on the next day $2 more. 

The best exit strategy would have been to get out quickly. The first day’s fall took it below the breakeven point, and there it remained for the lifespan of the position. Perhaps that’s a good rule of thumb: If a position moves beyond breakeven, perhaps adding a requirement that it open beyond the next day, then exit immediately.

The Earnings Surprise Predictor from Zacks Investment Research gave no indication of a likely surprise, and there was none, illustrating yet against that earnings results are a poor predictor of post-earnings price movements.

Shares fell by 20.2% over seven days, or a -1,055% annual rate. The options position produced a -46.9% loss for a -2,446% annual rate.

MOMO publishes earnings on Tuesday before the opening bell.

I shall use options that trade for the last time 11 days hence, on Sept. 1.

Implied volatility stands at 61%, which is 4.3 times the VIX, a measure of the volatility of the S&P 500 index.

MOMO’s IV stands in the 23rd percentile of its annual range and the 58th percentile of its most recent broad movement.

The price used for analysis was $44.24.

I inadvertently structured the trade as a very narrow iron condor rather than the iron fly I intended. No problem. The trade structure meets my requirements.

Premium: $4.04 Expire OTM  
MOMO-iron condor Strike Odds Delta
Long 53.00 91.8% 11
Break-even 48.04 ~76.0% ~29
Short 44.00 52.7% 53
Short 43.50 50.2% 47
Break-even 39.04 ~78.0% ~18
Long 35.00 92.3% 6

The premium is 45% of the width of the position’s wings.

The risk/reward ratio is 1.2:1.

The expected move is $3.66, within the $4.50 break-even width.

Decision for My Account

I have entered an order on MOMO as described above. The stock at the time of entry was priced at $4.04.

By Tim Bovee, Portland, Oregon, Aug. 21, 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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