PM Analysis

Philip Morris International Inc. (PM)

Update 11/8/2018: I’ve exited PM at a cost of $400 per contract, a loss of $57 from the credit at entry. Shares were priced at $89.24, up $4.79 from their price at entry.

Shares rose by 5.7% over 22 days, or a 94% annual rate. The options position produced a 14.3% loss for a -236% annual rate.

I have entered a short iron fly options spread on PM, using options that trade for the last time 30 days hence, on Nov. 16. The premium is a $3.43 credit and the stock at the time of entry was priced at $84.45

I made the decision to enter the trade because it coincides with an earnings announcement, on Thursday, Oct. 18.

The profit zone for this position is between $88.43 on the upside and $83.43 on the downside.

Implied volatility stands at 29%, which is 1.5 times the VIX, a measure of the volatility of the S&P 500 index.

PM’s IV stands higher than 77% of its daily readings over the past year, a metric known as the IV Rank.

The price used for analysis was $84.65.

Premium: $3.43 Expire OTM
PM-iron fly Strike Odds Delta
Long 90.00 82.0% 70
Break-even 88.43 68.0% 60
Short 85.00 54.0% 49
Short 85.00 45.0% 51
Break-even 83.43 59.0% 38
Long 80.00 73.0% 24

The premium is 68.6% of the width of the position’s wings.

The risk/reward ratio is 0.5:1, with maximum potential loss of $157 per contract and maximum potential gain of $343 per contract.

The bid/ask spread was 3.8%.

By Tim Bovee, Portland, Oregon, Oct. 17, 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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