LOW Analysis

Lowe’s Cos. Inc. (LOW)

Update 8/24/2017: LOW’s earnings failed to attain the Street estimate, coming in at $1.57, rather than the expected $1.62. Shares fell nearly $5 after publication, and then recovered more than half of the loss in a zig-zag movement. I exited at 23.1% of max profit, about $2 below my target.

Zacks Investment Research had predicted a positive earnings surprise, with an Earnings Surprise Predictor score of 0.62.

Shares showed a net decline of  2.8% over two days, or a -501% annual rate. The options positions produced a 30.0% return for a +5,481% annual rate.

LOW publishes earnings on Wednesday before the opening bell.

I shall use options that trade for the last time 10 days hence, on Sept. 1.

Implied volatility stands at 30%, which is 2.5 times the VIX, a measure of the volatility of the S&P 500 index.

LOW’s IV stands in the 84th percentile of its annual range and at the peak of its most recent broad movement.

The price used for analysis was $75.40.

Premium: $3.68 Expire OTM  
LOW-iron fly Strike Odds Delta
Long 82.50 91.8% 9
Break-even 79.18  ~77.0% ~25
Short 75.50 53.5% 49
Short 75.50 46.3% 51
Break-even 72.68  ~68.0%  ~29
Long 69.00 85.9% 12

The premium is 55% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

The expected move is 3.43, above the $3.43 break-even width. I allowed it because of reward being greater than the risk.

Decision for My Account

I have entered an order on LOW as described above. The stock at the time of entry was priced at $75.33.

By Tim Bovee, Portland, Oregon, Aug. 22, 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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