GRMN Analysis

Garmin Ltd. (GRMN)

Update 11/1/2017: GRMN announced earnings of $0.75 per share, 2.1% over the $0.70 consensus estimate. The share price gapped up by $1.01 at the opening bell and continued to rise. I exited at 24.9% of maximum potential profit; essentially, at my target.

Zacks didn’t predict an earnings surprise and had a neutral view of GRMN’s prospects.

Shares closed up $2.19 the first trading session after earnings were published, les than the estimated move of $2.72 and the maximum post-earns move of $3.70 during the past year, but greater than the average move of $1.68 and central tendency of $1.40.

Shares rose by 2.1% over my one-day holding period, or a +756% annual rate. The options position produced a 33.0% return for a +12,047% annual rate.


GRMN publishes earnings on Wednesday before the opening bell.

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

Implied volatility stands at 31%, which is 3.1 times the VIX, a measure of the volatility of the S&P 500 index.

GRMN’s IV stands in the 94th percentile of its annual range and the 70th percentile of its most recent broad movement.

The price used for analysis was $56.90.

Premium: $2.70 Expire OTM
GRMN-iron fly Strike Odds Delta
Calls 62.00 80.9% 11
Break-even 59.70
Short 57.00 51.9% 51
Puts
Short 57.00 48.1% 49
Break-even 54.70
Long 52.00 86.6% 12

The premium is 54% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

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 $3.70, and the average was $1.68. After eliminating the maximum and minimum post-earnings movements, the central tendency is $1.40.

The expected move covering 85% of occurrences is $2.72, beyond the profit zone.

The bid/ask spread is 8.5%.

Decision for My Account

In deciding to take the trade, I have chosen to rely more on the past post-earns moves rather than the expected move derived from the straddle price. I have entered a position on GRMN as described above. The stock at the time of entry was priced at $56.98.

By Tim Bovee, Portland, Oregon, October 31, 2017

Disclaimer

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.

License
Creative Commons License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

 

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