STZ Analysis

Constellation Brands Inc. (STZ)

Update 11/2/2018: I have exited STZ for a loss, leaving the position to avoid a higher chance of assignment when the stock goes ex-dividend on Monday, Nov. 5. The cost of exiting was a $8.93 debit — a loss of $53 per contract — with shares going for $200.97 each at exit, down $11.42 from the price at entry.

STZ rose immediately after earnings were published and then began a long, sometimes sharp decline, keeping it in loss territory much of the time, despite a broad profit zone.

Shares declined by 5.4% over 30 days, or a -65% annual rate. The options position produced a -5.9% loss for a -72% annual rate.

I have entered a short iron condor spread on STZ, using options that trade for the last time 44 days hence, on Nov. 16. The premium is an $8.40 credit and the stock at the time of entry was priced at $212.39.

I decided to enter the trade as an earnings play. STZ publishes earnings on Oct. 4 before the opening bell.

Implied volatility stands at 26%, which is 2.3 times the VIX, a measure of the volatility of the S&P 500 index. The IV Rank is 67.1.

The price used for analysis was $212.58.

Premium: $8.40 Expire OTM
STZ-iron condor Strike Odds Delta
Long 230.00 86.0% 15
Break-even 223.40 71.5% 30.5
Short 215.00 57.0% 46
Short 210.00 55.0% 43
Break-even 203.40 69.0% 29
Long 195.00 83.0% 15

The premium is 56% of the width of the position’s wings.

The risk/reward ratio is 0.8:1, with a maximum potential loss of $642 and gain of $840..

The bid/ask spread was 5.3%.

By Tim Bovee, Portland, Oregon, Oct. 3, 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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