KMX Analysis

CarMax Inc. (KMX)

Update 10/1/2018I have exited short iron fly position on KMX for a $2.60 debit, $0.87 below the $3.47 credit at entry. That’s 25% of maximum potential profit, my goal for iron fly positions. Shares stood at $74.85 at the time I exited.

KMX was dropping rapidly the day I entered, and stayed near the closing low of that day thereafter. The share price at exit was 38 cents above the low end of the profit range.

Shares declined by 1.2% over six days, or a -71% annual rate. The options position produced a 33.5% return for a +2,036% annual rate.

I have entered a short iron fly spread on KMX, using options that trade for the last time 24 days hence, on Oct. 19. The premium is a $3.47 credit and the stock at the time of entry was priced at $75.74.

I made the decision to enter the trade in my account because of proximity to an earnings announcement, on Sept. 26 before the opening bell..

The profit zone for this position is between $79.47 on the upside and $74.47 on the downside.

Implied volatility stands at 33%, which is 2.7 times the VIX, a measure of the volatility of the S&P 500 index. KMX’s IV rank stands at 62.9.

The price used for analysis was $84.80.

Premium: $3.47 Expire OTM
KMZ-iron condor Strike Odds Delta
Long 81.00 78.5% 24
Break-even 79.47 74.7% 24
Short 76.00 51.3% 52
Short 76.00 48.9% 48
Break-even 74.47 74.0% 23
Long 71.00 76.3% 21

The premium is 69% of the width of the position’s wings.

The risk/reward ratio is 0.4:1, with maximum potential loss at $1.53 per share and maximum potential gain at $3.47.

The bid/ask spread was 7.8%.

By Tim Bovee, Portland, Oregon, Sept. 25, 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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