LEN Analysis

Lennar Corp. (LEN)

Update 10/17/2018: I have exited LEN for a loss $0.36 loss per contract/share, as share prices declined by $4.11 during my 15-day holding period. The debit on the options at exit was $3.59 per contract share.

I chose to exit because the stock would go ex-dividend the next day. Since the position was in-the-money, there was a significant chance that the options would be assigned, an outcome I preferred to avoid.

LEN had been falling steadily since April when I entered the position, and after earnings were published, continued to fall. There was no drama, just a steady pace.

Shares declined by 8.7% over the 15 days, or a -211% annual rate. The options position produced a 10.0% loss for a -244% annual rate.

I have entered a short iron fly spread on LEN, using options that trade for the last time 45 days hence, on Nov. 16. The premium is a $3.23 credit and the stock at the time of entry was priced at $47.43.

I made the decision to enter the trade in my account based because of an earnings announcement, on Oct. 3 before the opening bell. 

Implied volatility stands at 40%, which is 3.3 times the VIX, a measure of the volatility of the S&P 500 index. LEN’s IV rank stands at 81%.

The price used for analysis was $47.51.

Premium: $3.23 Expire OTM
LEN-iron fly Strike Odds Delta
Long 52.50 81.0% 22
Break-even 50.73 74.7% 24
Short 47.50 52.0% 52
Short 47.50 48.0% 48
Break-even 45.73 74.0% 23
Long 42.50 79.0% 18

The premium is 65% of the width of the position’s wings.

The risk/reward ratio is 0.5:1, with a maximum potential loss of $274 and maximum potential gain of $323.

The bid/ask spread was 2.8%.

By Tim Bovee, Portland, Oregon, Oct. 2, 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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