TSN Analysis

Tyson Foods Inc. (TSN)

TSN publishes earnings on Monday before the opening bell.

I shall use options that trade for the last time 14 days hence, on Nov. 24.

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

TSN’s IV stands in the 74th percentile of its annual range and the 96th percentile of its most recent broad movement.

The price used for analysis was $74.03.

Premium: $3.45 Expire OTM
Strike Odds Delta
Calls 80.00 85.9% 16
Break-even 77.45
Short 74.00 52.1% 51
Short 74.00 48.0% 49
Break-even 71.45
Long 68.00 83.5% 15

The premium is 57.5% 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 $3 move either way. The biggest immediate move after each of the past four earnings announcements was $3.85, and the average was $2.49. After eliminating the maximum and minimum post-earnings movements, the central tendency is $2.93.

The expected move covering 85% of occurrences is $3.83, beyond the profit zone.

The bid/ask spread is 10.1%.

Decision for My Account

I am passing on TSN. The expected post-earns move exceeds the profit zone, although the average move and central tendency are within the zone. The algorithm of Zacks earning surprise predictor gives TSN a score suggesting there might be a positive earnings surprise. Add to that a widening of the bid/ask spread it is beyond my standards, albeit just barely, and I see just enough that worrisome to discourage me from the trade.

One problem is the options grid, which by its strike price arrangement forces me to narrow the profit. zone. If the grid allowed a more balanced construction, the trade might be vialbe.

By Tim Bovee, Portland, Oregon, November 10, 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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