HAL Analysis

Halliburton Co. (HAL)

HAL publishes earnings on Monday before the opening bell.

I shall use options that trade for the last time 14 days hence, on Nov, 3.

Implied volatility stands at 26%, which is !0 times the VIX, a measure of the volatility of the S&P 500 index.

HAL’s IV stands in the 2tth percentile of its annual range and the 72nd percentile of its most recent broad movement.

The price used for analysis was $43.26.

Premium: $1.53 Expire OTM
HAL-iron fly Strike Odds Delta
Calls 46.50 92.3% 9
Break-even 45.03
Short 43.50 55.4% 43
Short 43.50 44.9% 53
Break-even 42.03
Long 40.50 87.6% 11

The premium is 51% 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 $1.50 move either way. The biggest immediate move after each of the past four earnings announcements was $6.68, and the average was $2.63. After eliminating the maximum and minimum post-earnings movements, the central tendency is $1.76.

The expected move covering 85% of occurrences is $1.50, identical to the profit zone.

The bid/ask spread is 2.0%.

Decision for My Account

It’s a beautiful setup in so many ways, but the fact that even the central tendency of the last four earns moves exceeds the profit zone puts me on alert. Zacks algorithms suggest slight odds of a negative earnings surprise. If all  my coverage indictors were good, I would happily take that risk, especially since the Zacks earnings surprise predictor does better on positive surprises than negative.

But it is what it is. I am passing on HAL.

By Tim Bovee, Portland, Oregon, October 20, 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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