WHR Analysis

Whirlpool Corp. (WHR)

Update 10/15/2017: There were indications a downside earnings surprise was in the making, and WHR obliged, report $3.83 per share compared to the consensus estimate of $3.90. Shares declined by $19.25 the first trading day after publication.

For me it the outcome represented the chickens coming home to roost. I prefaced my decision to take the trade with this: “Despite the poor coverage…”. I bent my rules by entering a position whose zone of profit failed to cover both the expected move and the post-earns moves average, maximum and central tendency. The actual move exceed the maximum of the past four announcements by 88 cents.

My taking the trade points to an aspect of my psychology, and perhaps trader psychology in general, that I’ve noted over the years. If I put effort into analyzing a trade, I really want to make that trade, and I’m disappointed if I must pass on it. So the lesson for trading is, “Follow the numbers, not your heart.”

Shares declined by 11.24% over my two-day holding period, or a 2,052% annual rate. The options position produced a 40.6% loss for a 7,411% annual rate..

WHR publishes earnings on Monday after the closing bell.

I shall use options that trade for the last time 11 days hence, on Nov. 3.

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

WHR’s IV stands in the 88th percentile of its annual range and the 96th percentile of its most recent broad movement.

The price used for analysis was $182.08.

Premium: $8.60 Expire OTM
WHR-iron fly Strike Odds Delta
Calls 197.50 87.6% 14
Break-even 191.10
Short 182.50 49.2% 54
Short 182.50 51.0% 46
Break-even 176.10
Long 167.50 87.4% 11

The premium is 57.3% of the width of the position’s wings.

The risk/reward ratio is 0.7:1.

The zone of profit in the proposed trade covers a $7.50 move either way. The biggest immediate move after each of the past four earnings announcements was $18.37, and the average was $12.30.. After eliminating the maximum and minimum post-earnings movements, the central tendency is $15.16.

The expected move covering 85% of occurrences is $8.69, beyond the profit zone.

The bid/ask spread is 8.46%.

Decision for My Account

Despite the poor coverage, I have entered a position on WHR as described above. The risk/reward ratio is excellent and the bid/ask spread is acceptable. The risk is a bit higher than normal, but the mitigating factors listed above persuaded me that it was worth the additional risk. The stock at the time of entry was priced at $183.22.

By Tim Bovee, Portland, Oregon, October 23, 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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