10/6 – 3:30 p.m. New York time
I exited SPY for a profit below my target, ending the third leg of the series. I have not yet made a decision on rolling it forward. I have updated the analysis with details.
Author: Tim Bovee
COST Analysis
Costco Wholesale Corp. (COST)
Update Oct. 9, 2017: COST’s earnings beat the Street estimate of $2.04, coming in at $2.08. in the first day of trading after the announcement COST shares declined by $10.07, far greater than the maximum change of the last four earnings releases and about double the 85% confidence expectation. The move was an outlier, and it resulted in a loss for my position.
Zacks Investment Research‘s earnings surprise predictor had a 0.51% chance of a downside surprise prior to the announcement, suggesting that the positive surprise that actually occurred would have a positive impact on prices. The beta, 1.07, did not suggest an outsize move.
The loss at the market open after the announcement was $8.07, so the best strategy would have been to get out immediately. Holding on in the hope of a bounce cost an extra 50% in stock price decline. It would have been better to have exited at the post-announcement opening bell.
Shares declined by 7.4% over my four day holding period, or a -671% annual rate. The options position produced a 41.8% loss for a -4,383% annual rate.
COST publishes earnings on Thursday after the closing bell.
I shall use options that trade for the last time eight days hence, on Oct. 13.
Implied volatility stands at 22%, which is 2.3 times the VIX, a measure of the volatility of the S&P 500 index.
COST’s IV stands in the 92nd percentile of its annual range and the 83rd percentile of its most recent broad movement.
Live: Thursday, October 5, 2017
Live: Wednesday, October 4, 2017
PEP Analysis
Pepsico Inc. (PEP)
Update 10/4/2017: PEP reported earnings of $1.48, compared to a Street estimate of $1.45. The stock was $2.15 below my entry price at the time I exited, with the options position at 8.5% of maximum potential profit, well below my 25% target.
The declined was greater than the average over the prior four earnings announcements, and far greater than the central tendency. The expected move, $2.21, proved to be almost on the money, and in the future I shall give that greater weight in my decision making.
My experience has been that waiting to exit will rarely turn a sow’s ear into a silk purse. The main question is when during the day after earnings should I exit. In this case, I could have improved by results by a bit had I waited an hour. Even so, I couldn’t read the future an hour ago, and I shall never regret taking my profit off the table. It’s not always the most profitable decision, but it is the most prudent.
Shares declined by 2.0% over my one-day holding period, or a -718% annual rate. The options position produced a +9.3% return for a 3,387% annual rate.
PEP publishes earnings on Wednesday before the opening bell.
I shall use options that trade for the last time 10 days hence, on Oct. 13.
Implied volatility stands at 17%, which is 1.8 times the VIX, a measure of the volatility of the S&P 500 index.
PEP’s IV stands in the 65th percentile of its annual range and at the peak of its most recent broad movement.
MON Analysis
Monsanto Co. (MON)
MON publishes earnings on Wednesday before the opening bell.
I shall use options that trade for the last time 10 days hence, on Oct. 13.
Implied volatility stands at 11th%, which is 1.1 times the VIX, a measure of the volatility of the S&P 500 index.
MON’s IV stands in the 30th percentile of its annual range and the 58th percentile of its most recent broad movement.
Live: Tuesday, October 3, 2017
10/3 – 3:00 p.m. New York time
I entered one new position today, PEP, and exited it one for a roll, TLT. I also analyzed MON but declined the trade.
I have updated PEP’s analysis with the trade chart.
10/3 – 9:45 a.m. New York time
I have exited my TLT position for a profit and shall roll it forward, probably on Wednesday. I won’t calculate full results until the roll series is complete.
Live: Monday, October 2, 2017
10/2 – 2:40 p.m. New York time
I’m breaking off a bit early today to head to the Apple stores to get my iPhone repaired. The small-form charing port, present in the iPhone 5 and later, has once again gotten a clogged, no doubt by the dusty residue of expired options. I take the device in to the Apple Store for unclogging about one a year. No idea what they do with the expired options dust.
I had no trades at all today, although TLT is getting within reach of my goal of 50% of maximum potential profit.
The Week Ahead: Jobs, manufacturing, trade
The number of employed Americans has risen compared to one year earlier every September since 2010. With the publication of the latest employment situation report on Friday at 8:30 a.m. New York time, we’ll learn how the numbers compared to the Sept. 2016 number of employed, which was 151,926, seasonally adjusted.
The jobs report gets a sneak preview with the release of the private-sector ADP employment report on Wednesday at 8:15 a.m.
Additional major reports out during the week: The Institute of Supply Management manufacturing survey on Monday at 10 a.m. international trade on Thursday at 8:30 a.m. and factory orders on Thursday at 10 a.m.
TLT Analysis
iShares 20+ Year Treasury Bond ETF (TLT)
Update 12/6/2017: I have exited TLT at a $1.14 loss, with the intent of rolling forward to a new position in the series.
Update 10/24/2017: Another roll forward for TLT with the strikes $1 lower, and the long-term government debt downtrend continues. I also moved the expiration date out a month, to Dec. 15, which is 50 days away from entry.
I exited my position of 10/4 for a $0.24 debit, or 50% of maximum potential profit, having entered for a $0.48 credit.
As I enter the 10/24 position, TLT’s IV stands in the 18th percentile of its annual range and at the peak of its most recent broad movement, although within a very narrow range that has held sway since July.
| Premium: | $0.50 | Expire OTM | |
| TLT-vertical | Strike | Odds | Delta |
| Calls | |||
| Long | 127.00 | 82.0% | 16 |
| Break-even | 125.50 | ||
| Short | 125.00 | 66.0% | 32 |
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