Shares declined -11.8% over eight days, or a -539% annual rate. The options position produced a 16.2% yield on debit, for a +737% annual rate.
Update 5/12/2015: GMCR slipped gently over the lower boundary of the profit zone, and I exited the puts spread of my iron condor to limit the loss. However, I retained the calls spread, which will expire out of the money for maximum profit all the way up to $120 -- about 20% above present price.
I'll defer calculating results until the entire position in complete.
Update 5/8/2015: WFM fell sharply after earnings were published, and I've exited for a loss.
Shares fell 10.8% over two days, or a -1,971% annual rate. The options position produced a 127.8% loss on debit, for a -23,319% annual rate
The natural and organic foods grocery chain Whole Foods Market Inc. (WFM), headquartered in Austin, Texas, and the coffee and coffeemaker company Keurig Green Mountain Inc. (GMCR), headquartered in Waterbury, Vermont, publish earnings on Wednesday after the closing bell
I shall use the regular monthly MAY series of options, which trades for the last time nine days hence, on May 15
The goal of my trades is to construct direction-neutral positions 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.
WFM
Ranges
Click on chart to enlarge.
 |
| WFM at 10:19 a.m. New York time, 180 days 4-hour bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 50.18 | 52.99 | 57.57 |
| Lower | 44.56 | 41.75 | 36.24 |
| Gain/loss | 5.9% | 11.9% |
The Trade
short the $44 puts and long the $43 puts
sold for a credit and expiring May 16
Probability of expiring out-of-the-money
| MAY | Strike | OTM |
|---|---|---|
| Upper | 50 | 72.6% |
| Lower | 44 | 78.8% |
The risk/reward ratio stands at 1.5:1. The premium $0.36 ($0.12 for the calls and $0.14 for the puts).
GMCR
Ranges
Click on chart to enlarge.
 |
| GMCR at 10:27 a.m. New York time, 90 days 2-hour bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 120.65 | 130.64 | 131.09 |
| Lower | 100.67 | 90.68 | 109.06 |
| Gain/loss | 9.0% | 18.1% |
The Trade
short the $100 puts and long the $97 puts
sold for a credit and expiring May 16
Probability of expiring out-of-the-money
| MAY | Strike | OTM |
|---|---|---|
| Upper | 120 | 75.3% |
| Lower | 100 | 73.7% |
The risk/reward ratio stands at 1.2:1. The premium is $1.30 ($0.63 for the calls and $0.67 for the puts).
Decision for My Account
I've opened positions in WFM and GMCR as described above.
-- Tim Bovee, Portland, Oregon, May 6, 2015
References
My volatility trading rules can be read here.
Alerts
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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.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.
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