ZG Trade

Zillow Group (ZG)

Update 8/5/2022: I exited my short bull put vertical spread on ZG, 42 days before expiration, for a $1.61 debit per contract/share, a loss before fees of $19 per contract. Shares were trading at $36.26, down $1.28 from the entry level.

The Implied Volatility Rank at exit was 40.2%, down 25.4 points from the entry level.

ZG missed analysts’ earnings expectations by 81% — they had expected earnings of $0.157 per share prior to the announcement. The company reported earnings of $0.03 per share. I exited at 40.2% of maximum potential loss.

Shares fell by 3.4% over one day for a -1,244% annual rate. The options position produced an 11.8% loss for a -4308% annual rate.


I have entered a short bull put vertical spread on ZG, using options that trade for the last time 42 days hence, on September 16. The premium is a $1.42 credit per contract share and the stock at the time of entry was priced at $37.54.

The Implied Volatility Ratio stood at 65.6%.

Premium:$1.42Expire OTM
ZG-bull put spreadStrikeOddsDelta
Puts
Long30.0075.0%17
Break-even36.4265.5%15.5
Short35.0056.0%14

The premium is 56.8% of the width of the position’s short/long spread. The profit zone covers a 3% move to the downside and an unlimited move to the upside.

The risk/reward ratio is 2.5:1, with maximum risk of $358 and maximum reward of $142 per contract.

How I chose the trade. The trade was placed to coincide with ZG’s earnings announcement, after the closing bell on the day of entry. The short strikes were set to coincide with the expected move of $1.37 either way, based on options pricing, which gives a price range of $36.29 to $39.03. The Zacks Investment Research earnings surprise predictor gave ZG a score of 18.79%, with a rank of 3 (hold).

By Tim Bovee, Portland, Oregon, August 4, 2022

Disclaimer

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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Based on a work at www.timbovee.com.

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