Update 10/12/2018: I have exited my short iron fly position on JBL for a loss, a week before the options expired.
The stock gapped down at the opening after earnings were published by nearly $3, immediately pushing the price below the profitable zone, and the decline continued unabated though the nearly three weeks I held the position.
The debit on the options was $2.05, for a loss of $0.68 per contract/share, with shares trading at $23.63.
Shares declined by 20.6% over the 18 day holding period, or a -417% annual rate. The options position produced a -33.2% loss for a -673% annual rate.
I have entered a short iron fly spread on JBL, using options that trade for the last time 25 days hence, on Oct. 19. The premium is a $1.37 credit and the stock at the time of entry was priced at $29.75.
I made the decision to enter the trade in my account based on an earnings announcement. JBL publishes earnings on Sept. 25 before the opening bell.
The profit zone for this position is between $31.34 on the upside and $29.34 on the downside.
Implied volatility stands at 31%, which is 2.4 times the VIX, a measure of the volatility of the S&P 500 index. JBL’s IV rank is 56%.
The price used for analysis was $29.74.
The premium is 67% of the width of the position’s wings.
The risk/reward ratio is 0.5:1, with maximum loss of $0.66 per shares and maximum reward of $1.34 per share.
The bid/ask spread was 12%.
By Tim Bovee, Portland, Oregon, Sept. 24, 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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