CIEN Analysis

Ciena Corp. (CIEN)

Update 8/31/2017: CIEN fell $2.52 at the market open after earnings were published. I exited for a loss.

Shares declined by 10.3% over one day, or a -3,754% annual rate. The options position produced a -24.6% loss for a -8,955% annual rate.

The price stayed within the average, maximum and central tendency ranges of the last four earnings announcements. CIEN’s earnings came in close to the mark. The consensus earnings estimate was $0.50 per share, and the actual eps was $0.51.

The actual movement exceeded the $1.99 expected by $0.53, making the response an outlier theoretically occurring after only 15% of earnings announcements..

The Zacks Investment Research earnings surprise predictor gave a -1.31 score prior to publication, forecasting a downside surprise. The beta going into earnings was 1.61.

CIEN publishes earnings on Thursday before the opening bell.

I shall use options that trade for the last time nine days hence, on Sept. 8.

Implied volatility stands at 48%, which is 4.2 times the VIX, a measure of the volatility of the S&P 500 index.

CIEN’s IV stands in the 70th percentile of its annual range and the 84th percentile of its most recent broad movement.

The price used for analysis was $24.45.

Premium: $2.15 Expire OTM  
CIEN-iron fly Strike Odds Delta
Long 29.00 93.5% 8
Break-even 26.65 ~76.0% ~27
Short 24.50 52.1% 53
Short 24.50 47.8% 47
Break-even 22.15 ~22.0% ~23
Long 20.00 92.3% 6

The premium is 48% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

The zone of profit in the proposed trade covers a $2.25 move either way. The biggest immediate move after each of the past four earnings announcements was $3.71, and the average was $2.88. After eliminating the maximum and minimum post-earnings movements, the central tendency is $3.04.

The expected move covering 85% of occurrences is $1.99, within the $2.25 break-even width.

The bid/ask spread is 9%.

Decision for My Account

I have entered an order on CIEN as described above. The stock at the time of entry was priced at $24.50. 

The zone profit covers the 85% range, but historical post-earns movements have exceeded the zone. That will make the results of this trade particularly interesting: Which is more accurate, the implied future movement of the present options pricing, or the movements recorded of the past? I tend to be future looking, always, but I listen sharply when that natural inclination is overridden by events.

By Tim Bovee, Portland, Oregon, Aug. 30, 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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