FAST Analysis

Fastenal Co. (FAST)

Update 10/11/2017: FAST’s earnings came in at $0.50, slightly below the Street’s $0.52 consensus. The price gapped to the downside, and I exited for a small loss.

Although there is a chance that the price will reverse back to the upside, I have had very little good fortune when I hold to that expectation. That’s why I got out quickly.

Fundamentally, the iron fly strategy seems to work best when it’s treated as a roll of the dice: See the results, quickly take the winnings or losses, and move on.

Shares declined by 4.4% during my holding period, or a -1,619% annual rate. The options position produced a 8.2% loss for a -2,980% annual rate.

The $2.45 share price move was $0.31 greater than the expected move  yet below the average and central tendency moves of the past year.No earnings surprise was expected, contrary to the downside surprise that actually occurred.

FAST publishes earnings on Wednesday before the opening bell.

I shall use options that trade for the last time 11 days hence, on Oct. 20.

Implied volatility stands at 32%, which is 3.1 times the VIX, a measure of the volatility of the S&P 500 index.

FAST’s IV stands in the 87th percentile of its annual range and at the peak of its most recent broad movement.

The price used for analysis was $44.97.

Premium: $2.25 Expire OTM
FAST-iron fly Strike Odds Delta
Long 50.00 93.7% 7
Break-even 47.25
Short 45.00 52.6% 50
Short 45.00 47.4% 50
Break-even 42.25
Long 40.00 90.4% 8

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

The risk/reward ratio is 1.2:1.

The zone of profit in the proposed trade covers a $2.50 move either way. The biggest immediate move after each of the past four earnings announcements was $4.05, and the average was $2.47. After eliminating the maximum and minimum post-earnings movements, the central tendency is $2.48.

The expected move covering 85% of occurrences is $2.14, within? /the profit zone.

The bid/ask spread is 7.7%.

Decision for My Account

I have entered a position on FAST as described above. The stock at the time of entry was priced at $44.97.

By Tim Bovee, Portland, Oregon, October 10, 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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