HON Analysis

Honeywell International Inc. (HON)

Update 11/7/2018: I have exited HON for $600 per contract, a gain of $34 per contract, with shares trading at $149.10, down $6.70 per share. The exit price was at 5.4% of maximum potential profit.

Shares declined by 4.3% over 20 days, or a 78% annual rate. The options position produced a 5.7% return for a 103% annual rate.

I have entered a short iron fly options spread on HON, using options that trade for the last time 29 days hence, on Nov. 16. The premium is a $6.34 credit and the stock at the time of entry was priced at $155.80.

I made the decision to enter the trade because of its proximity to an earnings announcement, on Friday, Oct. 19, before the opening bell.

The profit zone for this position is between $161.34 on the upside and $151.34 on the downside.

Implied volatility stands at 25%, which is 1.2 times the VIX, a measure of the volatility of the S&P 500 index.

PG’s IV stands higher than 69% of its daily readings over the past year.

The price used for analysis was $155.28.

Premium: $6.34 Expire OTM
HON-iron fly Strike Odds Delta
Long 165.00 85.0% 16
Break-even 161.34 67.0% 35
Short 155.00 49.0% 53
Short 155.00 51.0% 47
Break-even 151.34 65.5% 33
Long 145.00 80.0% 18

The premium is 63% of the width of the position’s wings.

The risk/reward ratio is 0.6:1, with maximum potential loss of $368 per contract and maximum potential profit of $634 per contract.

The bid/ask spread was 4.6%.

By Tim Bovee, Portland, Oregon, Oct. 18, 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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