NSC Analysis

Norfolk Southern Corp. (NSC)

NSC publishes earnings on Wednesesday before the opening bell.

I shall use options that trade for the last time 10 days hence, on Nov. 3.

Implied volatility stands at 26%, which is 2.7 times the VIX, a measure of the volatility of the S&P 500 index.

NSC’s IV stands in the 54th percentile of its annual range and the 84th percentile of its most recent broad movement.

The price used for analysis was $132.85.

Premium: $2.80 Expire OTM
NSC-iron fly Strike Odds Delta
Calls 141.00 89.6% 11
Break-even 135.80
Short 133.00 52.3% 50
Short 133.00 47.7% 50
Break-even 127.80
Long 125.00 92.7% 16

The premium is 35% of the width of the position’s wings.

The risk/reward ratio is 1.8:1.

The zone of profit in the proposed trade covers a $4 move either way. The biggest immediate move after each of the past four earnings announcements was $3.91, and the average was $2.69. After eliminating the maximum and minimum post-earnings movements, the central tendency is $2.91.

The expected move covering 85% of occurrences is $4.82, beyond the profit zone.

The bid/ask spread is 10.3%.

Decision for My Account

I am passing on NSC. Although the profit zone covers the post-earns moves of the last for announcements, it fails to cover the 85% expected move. Also, the bid/ask spread widened since my morning check and now is above 10%. 

By Tim Bovee, Portland, Oregon, October 24, 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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