8/17 – 3:30 p.m. New York time
I entered positions on AMAT and DE coinciding with earnings announcements, and exited a position on WMT.
I analyzed GPS but declined the trade.
Author: Tim Bovee
WMT Analysis
Wal-Mart Stores Inc. (WMT)
Update 8/17/2017: WMT’s earnings came in spot on the analyst expectations, at $1.08 per share. Zacks Investment Research had given a 0.94% earnings surprise predictor score.
The stock fell in pre-market trading and then began to rise after the opening bell. I exited the contracts at a $2.21 debit, or 24.8% of maximum potential profit, with shares at $79.11.
Shares declined by 2.2% over one day, or a -819% annual rate. The options position produced a 33.0% return for a +12,057% annual rate.
WMT publishes earnings on Thursday before the opening bell.
I shall use options that trade for the last time nine days hence, on Aug. 25.
Implied volatility stands at 22%, which is 1.9 times the VIX, a measure of the volatility of the S&P 500 index.
WMT’s IV stands in the 72nd percentile of its annual range and the 88th percentile of its most recent broad movement.
CSCO Analysis
Cisco Systems Inc, (CSCO)
Update 8/21/2017: CSCO fell a dollar after earnings were published after coming in at $0.62, a penny plus change above analysts’ consensus expectation. It declined the first trading session after earnings were published, and continued its descent for two subsequent days. It rose again on the third day, and I exited for a loss less than a week before the options expired.
Shares declined by 5.6^ over five days, or a -409% annual rate. The options position produced a -39.9% loss for a -2,912% annual rate
CSCO publishes earnings on Wednesday after the closing bell.
I shall use options that trade for the last time nine days hence, on Aug. 25.
Implied volatility stands at 22%, which is 1.9 times the VIX, a measure of the volatility of the S&P 500 index.
CSCO’s IV stands in the 68th percentile of its annual range and the 84th percentile of its most recent broad movement.
NTAP Analysis
NetApp Inc. (NTAP)
Update 8/21/2017: NTAP’S earnings beat the Street estimate somewhat, coming in at $0.62 as compared to $0.58. In keeping with the perverseness of the markets, the price fell $2 on the second trading day after the announcement, and continued to fall for three subsequent days. I exited for a loss with options expiration less than a week away.
Shares showed a net decline of 7.7% over my five-day holding period, or a -562% annual rate. The options position produced a -33.7% loss for a -2,461% annual rate.
NTAP publishes earnings on Wednesday after the closing bell.
I shall use options that trade for the last time nine days hence, on Aug. 25.
Implied volatility stands at 35%, which is 3.1 times the VIX, a measure of the volatility of the S&P 500 index.
NTAP’s IV stands in the 55th percentile of its annual range and the 75th percentile of its most recent broad movement.
Live: Wednesday, Aug. 16, 2017
TGT Analysis
Target Corp. (TGT)
Update 8/16/2017: TGT’s earnings came in a $1.23, slightly below the $1.28 consensus expectation by analysts. The share price whipsawed in pre-open trading but immediately after the opening bell was close to where it had closed the day before. I exited with the share price at $55.57 and the options position at a debit of $1.97, or 24.8% of maximum potential profit.
Shares rose by a net 0.5% over my one-day holding period, or a +172% annual rate. The options position produced a +32.1% return for a +12,043% annual rate.
Zacks Investment Research had given TGT an earnings surprise predictor of zero, suggesting a small move that would be more likely to stay within the profit zone, and that’s how it played out.
TGT publishes earnings on Wednesday before the opening bell.
I shall use options that trade for the last time 10 days hence, on Aug. 25.
Implied volatility stands at 30%, which is 2.5 times the VIX, a measure of the volatility of the S&P 500 index.
TGT’s IV stands in the 83rd percentile of its annual range and the 78th percentile of its most recent broad movement.
Live: Tuesday, Aug. 15, 2017
8/15 – 3:05 p.m. New York time
OutcomesI I entered a position in TGT and exited one in HD.
After posting I edited the TGT analysis to include a rule of thumb on expected movement.
It’s calculated this way: Take the price of a front-week at-the-money straddle (an iron fly without the wings) and multiply it by 0.85. The result is the expected move. By front week I mean the next options series closest to expiration. It almost certainly will differ from the series I’m trading.
I compare the expected move with the break-even points, the goal being to have break-even points that are wider than the expected move.
8/15 – 9:35 a.m. New York time
I have exited HD for a profit.
HD Analysis
The Home Depot Inc. (HD)
Update 8/15/2017: HD’s earnings came in about where expected, at $2.24 per share, compared to the consensus forecast of $2.25. Shares fell about $1 in the first five minutes of trading after earnings were published. i exited at 26.8% of maximum potential profit.
Shares rose by 0.1% over my one-day holding period, or a +21% annual rate. The options position produced a +36.6% return for a +13,349% annual rate.
I chose to enter HD in part because Zacks Investment Research‘s earnings surprise predictor was 0.45%, narrow there than the -2% to 2% range that I’m allowing in my screening. The indicator proved to be a good predictor of the outcome.
HD publishes earnings on Tuesday before the opening bell.
I shall use options that trade for the last time 11 days hence, on Aug. 25.
Implied volatility stands at 22%, which is 1.8 times the VIX, a measure of the volatility of the S&P 500 index.
HD’s IV stands in the 66th percentile of its annual range and the 75th percentile of its most recent broad movement.
Live: Monday, Aug. 14, 2017
8/14 – 3:25 p.m. New York time
And the day’s work’s is pretty much done. I entered a position on HD and exited JD plus my positions expiring at the end of the week: FOSL, HTZ, KORS, KSS, SNAP and CBI.
I have updated with results all of the exits except HTZ, and that final one will be completed before the closing bell.
The Week Ahead: Retail, housing, industry
Retail sales on Tuesday and housing starts on Wednesday, each published at 8:30 a.m. New York time, and industrial production on Thursday at 9:15 a.m. provide the new economic data through which the markets will swim during the week.
The Federal Open Market Committee minutes of the July 26 meeting, which which the committee voted without dissent to keep the federal funds rate unchanged, will be released on Wednesday at 2 p.m.
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