AXP Analysis

American Express Co. (AXP)

Update 1/17/2018: AXP moved into a downtrend as measured by the Fisher AXP metric. The price was already below the peak and earnings were the next day. I chose to eliminate the risk by exiting early.

Shares declined by 1.0% over five days, or a 70% annual rate. The options position produced a -5.0% loss for a -368% annual rate.


I have entered a short iron fly spread on AXP, using options that trade for the last time 14 days hence, on Jan. 26. The premium is a $3.39 credit and the stock at the time of entry was priced at $100.80.

I made the decision to enter the trade in my account based on low probability of an earnings surprise and a downtrending Fisher Transform metric, which matches the greater likelihood of success on a price decline.

The profit zone for this position is between $104.39 on the upside and $97.39 on the downside.

AXP publishes earnings on Jan. 18 after the closing bell.


Implied volatility stands at 22%, which is 2.2 times the VIX, a measure of the volatility of the S&P 500 index.

AXP’s IV stands in the 55th percentile of its annual range and the 79th percentile of its most recent broad movement.

The price used for analysis was $100.85.

Premium: $3.39 Expire OTM
AXP-iron fly Strike Odds Delta
Calls
Long 108.00 90.8% 10
Break-even 104.39 74.7% 24
Short 101.00 52.6% 49
Puts
Short 101.00 47.4% 51
Break-even 97.39 74.0% 23
Long 94.00 89.8% 9

The premium is 48.7% of the width of the position’s wings.

The risk/reward ratio is 1.1:1.

The zone of profit in the proposed trade covers a $3.39 move to the upside and a $3.61 move to the downside. The biggest immediate move after each of the past four earnings announcements was $4.47, and the average was $1.43. After eliminating the maximum and minimum post-earnings movements, the central tendency is $0.54.

Over the past four earnings announcements the price has closed the first post-earns session higher than the pre-earns close one time.

The break-even probabilities applied to the past four post-earnings moves show a 18.7% probability of the price rising while contained within the boundaries of the profit zone and a 55.5% probability of it falling while remaining profitable

Options analysis puts the expected move covering 85% of occurrences at $3.33, within the profit zone.

The bid/ask spread was 2.9%.

By Tim Bovee, Portland, Oregon, Jan. 12, 2018

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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