AXP Analysis

American Express Co. (AXP)

AXP publishes earnings on Wednesday after the closing bell.

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

Implied volatility stands at 20%, which is double the VIX, a measure of the volatility of the S&P 500 index.

AXP’s IV stands in the 40th percentile of its annual range and the 75th percentile of its most recent broad movement.

The price used for analysis was $91.94.

Premium: $2.53 Expire OTM
AXP-iron fly Strike Odds Delta
Calls 97.00 90.3% 10
Break-even 94.53
Short 92.00 51.8% 50
Short 92.00 48.2% 50
Break-even 89.53
Long 87.00 87.3% 12

The premium is 50.6% of the width of the position’s wings.

The risk/reward ratio is 1:1.

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 $5.53, and the average was $2.77. After eliminating the maximum and minimum post-earnings movements, the central tendency is $2.53.

The expected move covering 85% of occurrences is $2.58, slightly wider than the profit zone.

The bid/ask spread is 11.1%.

Decision for My Account

I am declining the trade because of poor coverage — both the expected move and the historical post-earns moves exceed the profit zone — and because of a bid/ask spread that exceeds my standards.

By Tim Bovee, Portland, Oregon, October 18, 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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