MON Analysis

Monsanto Co. (MON)

I have passed a short iron fly spread on MON, using options that trade for the last time nine days hence, on Jan. 12. The bid/ask spread, at 42.2%, is too wide to meet my standards.

The profit zone for this position is between $119.55 to the upside and $113.55 to the downside.

MON publishes earnings on Thursday after the closing bell.

Implied volatility stands at 19%, which is double the VIX, a measure of the volatility of the S&P 500 index.

MON’s IV stands in the 72nd percentile of its annual range and is at the peak of its most recent broad movement.

The price used for analysis was $117.63.

The biggest immediate move after each of the past four earnings announcements was $1.50, and the average was $0.55. After eliminating the maximum and minimum post-earnings movements, the central tendency is $0.32.

Premium: $1.55 Expire OTM
MON-iron fly Strike Odds Delta
Long 124.00 80.4% 14
Break-even 119.55 71.0% 40
Short 118.00 55.8% 45
Short 118.00 44.3% 55
Break-even 113.55 77.0% 21
Long 112.00 90.5% 10

The premium is 25.8% of the width of the position’s wings.

The risk/reward ratio is 2.9:1.

The zone of profit in the proposed trade covers a $1.55 move to the upside and a $4.45 move to the downside, showing heavy skewing.

Over the past four earnings announcements the price has closed the first post-earns session higher than the pre-earns close three! times.

The break-even probabilities applied to the past four post-earnings moves show a 53.3% probability of the price rising while contained within the boundaries of the profit zone and a 19.3% probability of it falling while remaining profitable

Options analysis puts the expected move covering 85% of occurrences at $2.18, beyond the profit zone.

Decision for my account: No trade.

By Tim Bovee, Portland, Oregon, Jan. 3, 2018


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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