Tim Bovee, Private Trader: USB, PNC Analysis

Tuesday, April 14, 2015

USB, PNC Analysis

Update 4/22/2015: I exited USB after eight days, with shares having declined by 2.1%, or a 95% annual rate. My options position produced a 45.7% yield on debit, or a +2,086% annual rate.

Update 4/16/2015: I closed my position in PNC one day prior to the last day of trading to free up funds for other trades.

PNC shares declined by 1.8% over the two-day lifespan of the position, or a -327% annual rate. My options contracts produced an 88.7% yield on debit, for a +16,190% annual rate.

The banking companies U.S. Bancorp (USB), headquartered in Minneapolis, Minnesota, and PNC Financial Services Group Inc. (PNC), headquartered in Pittsburgh, Pennsylvania, publish earnings prior to the opening bell on Wednesday.

The goal of my trades is to construct a direction-neutral position with a zone of profitability at expiration covering all of the one standard deviation range implied by volatility and options pricing, or the 30-day hourly chart support and resistance range, whichever is wider.

I shall use the APR4 Weeklys series of options, which trades for the last time 10 days hence, on April 24, and the APR Monthlys series, which closes trading three days hence, on April 17.

[USB, PNC in Wikipedia]

USB

Ranges

Click on chart to enlarge.

USB at 10:12 a.m. New York time, 30 days hourly bars

Implied volatility stands at 19.5%, which is 1.4 times the VIX, a measure of volatility of the S&P 500 index. USB’s volatility stands in the 56th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	44.10	44.87	44.18
Lower	42.58	41.81	42.71
Gain/loss	1.8%	3.5%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

Iron condor short the $44 calls and long the $45 calls,
short the $42.50 puts and long the $41.50 puts
sold for a credit and expiring April 25
Probability of expiring out-of-the-money

APR4	Strike	OTM
Upper	44	73.5%
Lower	42.5	76.5%

The risk/reward ratio stands at 1.9:1. The premium was $0.35 ($0.20 for the alls and $0.15 for the puts).

PNC

Ranges

Click on chart to enlarge.

PNC at 10:15 a.m. New York time, 30 days hourly bars

Implied volatility stands at 21.9%, which is 1.5 times the VIX, a measure of volatility of the S&P 500 index. PNC’s volatility stands in the 50th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	95.34	97.20	93.91
Lower	91.64	89.78	92.36
Gain/loss	2.0%	4.0%

Implied volatility 1 and 2 standard deviations; chart support and resistance
The Trade

This is the closest I can get to a workable position that balances the probability of expiring out of the money for maximum profit and the risk/reward ratio. It skimps a bit on the upside and goes overly wide on the downside, a structure dictated by the $2.50 spread between strike prices.

Iron condor short the $95 calls and long the $97.50 calls,
short the $90 puts and long the $87.50 puts
sold for a credit and expiring April 18
Probability of expiring out-of-the-money

APR	Strike	OTM
Upper	95	68.0%
Lower	90	82.8%

The risk/reward ratio stands at 2.6:1. The premium is $0.62 ($0.46 for the calls and $0.16 for the puts).

Decision for My Account

I've opened positions in USB and PNC as described above.

-- Tim Bovee, Portland, Oregon, April 14 2015

References

My volatility trading rules can be read here.

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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.