LRCX Analysis

Lam Research Corp. (LRCX)

LRCX publishes earnings on Tuesday after the closing bell.

I shall use options that trade for the last time 10 days hence, on Oct. 27.

Implied volatility stands at 34%, which is 3.3 times the VIX, a measure of the volatility of the S&P 500 index.

LRCX’s IV stands in the 90th percentile of its annual range and the 95th percentile of its most recent broad movement.

The price used for analysis was $194.19.

Premium: $1.35 Expire OTM
LRCX-vertial Strike Odds Delta
Long 185.00 75.9% 22
Break-even 191.35
Short 190.00 62.4% 35

The premium is 27% of the width of the position’s wings.

The risk/reward ratio is 2.7:1.

The biggest immediate move after each of the past four earnings announcements was $8.74, and the average was $4.79. After eliminating the maximum and minimum post-earnings movements, the central tendency is $8.74.

The bid/ask spread is 25%.

Decision for My Account

I chose to construct the trade as a bull put spread. The stocks rated very bullish by Zacks, with an expectation of a positive earnings surprise.

Nonetheless, I am passing on the trade, because of the wide bid/ask spread. A 25% spread will make it difficult to exit the position if I must do so. I prefer a spread under 10%.

By Tim Bovee, Portland, Oregon, October 17, 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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