I entered positions in FNSR and IBM, and I exited a position in COST for a loss.

By Tim Bovee, Portland, Oregon, Dec. 8, 2016

International Business Machines Corp. (IBM)

Update 1/10/2017: IBM rose to the upper boundary of its profit zone and there it stayed, fluctuating from a winning to a losing position as the stock price traded within a very narrow range. I picked a point of exit where I could get out with a profit, although a small one.

Shares rose by 0.7 over 33 days, or a +8% annual rate. The options position produced a 6.3% yield on debit for a +70% annual rate.

This volatility play was initially crafted by Dough trader Fauzia. It breaks with my usual practice in several ways. The short call is at the money. The stock is within 60 days of earnings (on Jan. 19). Implied volatility is below the 50th percentile of the annual range.

I shall use the JAN series of options, which trades for the last time 43 days hence, on Jan. 20.

Implied volatility stands at 33%, which stands in the 32 percentile of its annual range and in the 53rd percentile of its most recent broad move. The price used for analysis was $165.70.

Iron condor, short the $165 calls and long the $175 calls,

short the $160 puts and long the $150 puts,

sold for a credit and expiring Jan. 21.

Probability of expiring out-of-the-money

The premium is $5.20, which is 52% of the width of the position’s wings.

The risk/reward ratio is 0.9:1.

Decision for My Account

I have entered a position on IBM as described above. The stock at the time of entry was priced at $165.61.

Tim Bovee, Portland, Oregon, Dec. 8, 2016

Finisar Corp. (FNSR)

Update 1/21/2017: Options remaining in my FNSR position expired today after the position was disrupted by an exercise of short put options. The overall position was slightly unprofitable.

FNSR spiked prior to its earnings announcement and then declined just as rapidly before the market close. The company published earnings after the closing bell with earnings per share that exceeded the Street estimate by 54%.

Nevertheless, the shares drifted lower, and about midway through the lifespan of the position, the short puts were exercised, putting long shares in my account. I sold the long shares, sold the accompanying long put, and allowed the remaining bear call spread, which was well out of the money, to expire worthless for maximum profit.

Shares declined by 10.9% over 43 days, or a -93% annual rate. The options position produced a 1.1% loss on debit for a -9% annual rate.

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I shall look at FNSR today as a potential earnings play.

I have closed my day-old earnings play on COST for a profit.

I entered this position XLF while Private Trader was hosted on Blogger and experiencing huge platform problems. As a result, I traded XLF without posting an analysis of any short.

I have since switched to WordPress as my host and exited the XLF position today.

Here’s a brief description of the trade and the results.

Financial Select Sector SPDR ETF (XLF)

Update 1/5/2017: XLF moved into a series of sideways swings after I entered the position. I exited at 27% of maximum potential profit.

Shares declined by 0.1% over 29 days, or a -2% annual rate. The options position produced a 37.3% yield on debit for a +470% annual rate.

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Update 12/28/2016: HRB held to a sideways trend  after earnings were published. Time decay and a decline in implied volatility eventually brought to a sufficient profit by my standards, and I exited at 25% of the maximum potential gain.

Shares declined by 1.1% over 21 days, or a -19% annual rate. The optons position produced a 33.3% yield on debit for a +579% annual rate

(The analysis was shortened because of technical problems with Blogger, which hosted Private Trader at the time.)

I have entered an earnings play on HRB using the JAN series of options, which trade for the last time 44 days hence on Jan. 20.

The position is an iron fly, short the $23 calls and $23 puts, long the $25 calls and $21 puts

Premium: $1.40.

By Tim Bovee, Portland, Oregon, Dec. 7, 2016

Update 12/8/2016: I exited COST for a loss after it moved well beyond my boundaries after earnings were announced.

Shares rose by 5.0% over one day, or a +1,827% annual rate. The options position produced a -20.2% loss on debit for a -7,354% annual rate

Costco Wholesale Corp. (COST)

COST publishes earnings on Wednesday after the closing bell.

I shall use the JAN series of options, which trades for the last time 44 days hence, on Jan. 20.

Implied volatility is 22%, which stands in the 52nd percentile of its annual range and the 86th percentile of its most recent broad movement. The price used for analysis was $152.49.

Iron fly, short the $150 calls and long the $160 calls,
short the $150 puts and long the $140 puts,
sold for a credit and expiring Jan. 21.
Probability of expiring out-of-the-money

The premium is $6.45, which is 64% of the width of the position’s wings.

The risk/reward ratio is 0.6:1.

Decision for My Account

I have entered a position on COST as described above. The stock at the time of entry was priced at $152.82.

Ciena Corp. (CIEN)

CIEN publishes earnings on Thursday before the opening bell.

I shall use the JAN series of options, which trades for the last time 44 days hence, on Jan. 20.

Implied volatility stands at 51%, which is in the 46th percentile of its annual range and the 73rd percentile of the most recent broad movement. The price used for analysis was $21.60.

Iron condor, short the $23 calls and long the $24 calls,
short the $19 puts and long the $18 puts,
sold for a credit and expiring Jan. 21.
Probability of expiring out-of-the-money

The premium is $0.41, which is 41% of the width of the position’s wings.

The risk/reward ratio is 1.4:1.

The zone of profit in the proposed trade covers a $2.20 move either way. The biggest immediate move after each of the past four earnings announcements was $4.07, and the average was $2.66. After eliminating the maximum and minimum post-earnings movements, the central tendency is $2.90.

Decision for My Account

I’m passing on CIEN. I want a wider zone of profit in comparison to historical price moves immediately after an earnings announcement.

Alerts

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.

License

All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.

Update 12/9/2016: I exited IWM after it continued its upside move. I’m not certain what Dough trader Ryan was thinking, but I presume he was looking for a downturn and a further drop in implied volatility. Didn’t happen. Could happen soon. Or not.

The beauty of the iron fly options strategy, which I’m new to, is that the risk/reward ratio is far better than with the textbook iron condors. Unlike many other short option plays, the iron fly loses more slowly than it gains.

Shares rose by 3.3% over three days, or a +397% annual rate. The options position produced a -13% loss on debit for a =1,552% annual rate.

iShares Russell 2000 (IWM)

This trading idea came from Dough trader Ryan.

I shall use the JAN06 series of options, which trades for the last time 31 days hence, on Jan. 6.

Implied volatility stands at 18%, which stands in the 16th percentile of its annual range. The price used for analysis was $221.22.

Ryan’s trade differs from my normal practice in that implied volatility is low in relation to its annual range, and similarly low in relation to its most recent move. Here’s his structure.

Iron condor, short the $132.50 calls and long the $137.50 calls,
short the $132.50 puts and long the $125.5 puts,
sold for a credit and expiring Jan. 7.
Probability of expiring out-of-the-money

The premium is $3.83, which is 77% of the width of the position’s wings.

The risk/reward ratio is 0.8:1.

Decision for My Account

I have entered a position on IWM as described above. The shares at the time of entry were priced at $134.13.

SPDR Gold Trust (GLD)

Update 1/4/2017: GLD declined through the early portion of the holding period and then began a shallow retracement to the upside. Declining implied volatility helped the yield, and I exited at 60.1% of maximum potential profit.

Shares declined by 0.6% over 34 days, or a -7% annual rate. The options position produced a 150.5% yield on debit for a +1,616% annual rate.

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