MO Analysis

Altria Group Inc. (MO)

Update 10/30/2017: MO published earnings of $0.90 per share, slightly beating the Street estimate of $0.87. Shares were up by about half  a dollar at the open and continued to rise throughout the today, and then declined in two subsequent trading days to near the pre-announcement level. I exited a 9.4% of maximum potential profit.

Zacks anticipated a -0.49 downside earnings surprise, the opposite of what actually occurred.

The movement by the end of the first post-earnings trading session was up by $2.00, slightly within the $2.25 maximum movement of the past year and far greater than the central tendency of $0.15.

Shares rose by 1.7% over my five-day holding period, for a +126% annual rate. The options position produced a +10.3% return for a +754% annual rate.

MO publishes earnings on Thursday before the opening bell.

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

Implied volatility stands at 24%, which is double the VIX, a measure of the volatility of the S&P 500 index.

MO’s IV stands in the 56th percentile of its annual range and the 75th percentile of its most recent broad movement.

The price used for analysis was $63.57.

Premium: $1.71 Expire OTM
MO-iron fly Strike Odds Delta
Calls 67.00 90.4% 10
Break-even 65.21
Short 63.50 49.6% 52
Short 63.50 50.6% 48
Break-even 61.71
Long 60.00 89.0% 10

The premium is 48.9% 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 $1.75 move either way. The biggest immediate move after each of the past four earnings announcements was $2.23, and the average was $0.64. After eliminating the maximum and minimum post-earnings movements, the central tendency is $0.15.

The expected move covering 85% of occurrences is $1.69, within the profit zone.

The bid/ask spread is 5.8%.

Decision for My Account

All of my metrics, with the exception of the maximum post-earns move of the past year, are covered by profit zone. I have entered a position on MO as described above. The stock at the time of entry was priced at $63.60.

By Tim Bovee, Portland, Oregon, October 25, 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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