Update 1/22/2018: With earnings two das away, LVS gapped up at the opening bell, as it had the first day of the week before, and the week before that. This week Monday’s opening price was $1.53 above Friday’s close, bringing my options position into profitability. I exited at 43.6% of maximum potential profit, with the Fisher Transform metric still uptrending on both the daily and 4-hour charts.
Shares rose by 3.2% over my four-day holding period, or a +294% annual rate. The options position produced a 77.5% return for a +7,059% annual rate.
I have entered a bull put vertical spread on LVS, using options that trade for the last time 15 days hence, on Feb. 2. The premium is a $0.94 credit and the stock at the time of entry was priced at $74.18.
I made the decision to enter the trade in my account based on an uptrend on the Fisher Transform metric and a high earnings surprise predictor score (ESP) of 2.16% from Zacks.
The profit zone for this position is $71.97 and up.
LVS publishes earnings on Jan. 24 before the opening bell.
Implied volatility stands at 27%, which is 2.2 times the VIX, a measure of the volatility of the S&P 500 index.
LVS’s IV stands in the 55th percentile of its annual range and at the peakof its most recent broad movement.
The price used for analysis was $73.93.
|LVS-bull put spread||Strike||Odds||Delta|
The premium is 37.6% of the width of the position.
The risk/reward ratio is 4.3:1.
The zone of profit in the proposed trade covers an infinite move to the upside and a $0.93 move to the downside. The biggest immediate move after each of the past four earnings announcements was $4.24, and the average was $1.39. After eliminating the maximum and minimum post-earnings movements, the central tendency is $0.63. One large post-earns move raised the average, so I put more reliance on the central tendency.
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 64% probability of the price rising while contained within the boundaries of the profit zone.
Options analysis puts the expected move covering 85% of occurrences at $1.07.
The bid/ask spread was 8.3%.
By Tim Bovee, Portland, Oregon, Jan. 18, 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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