Update 1/11/2016: I exited BIIB FEB options at 50% of maximum potential profit and shall roll back into the position prior to the Jan. 27 earnings announcement.
| BIIB | vertical | ||||||
| option | credit | debit | profit | yield | entry | exit | days |
| -c280nov (c290nov) | 3.40 | -3.35 | 0.05 | 1.5% | 10/20/2015 | 11/17/2015 | 28 |
| -c280dec (c290dec) | 1.02 | -4.07 | -3.05 | -74.9% | 11/17/2015 | 12/4/2015 | 17 |
| -c280dec (c290dec) | 4.59 | -4.20 | 0.39 | 9.3% | 12/4/2015 | 1/11/2016 | 38 |
| -1c280feb (c290feb) | 4.50 | -2.23 | 2.27 | 101.8% | 1/11/2016 | 1/20/2016 | 9 |
| ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- | ----------- |
| Status: | 13.51 | -13.85 | -0.34 | -2.5% | 92 | ||
| option description key: long/short, call/put, strike, series | |||||||
The pharmaceutical house Biogen Inc. (BIIB), headquartered in Cambridge, Massachusetts, publishes earnings on Wednesday before the opening bell.
[BIIB in Wikipedia]
BIIB
I shall use the NOV series of options, which trades for the last time 31 days hence, on Nov. 20.
Ranges
Implied volatility stands at 48%, which is 3.2 times the VIX, a measure of volatility of the S&P 500 index. BIIB’s volatility stands in the 78th percentile of its annual range.
| Week | SD1 68.2% | SD2 95% | Earns |
|---|---|---|---|
| Upper | 0 | 0 | 358.77 |
| Lower | 0 | 0 | 188.73 |
| Gain/loss | 0% | 0% |
The Trade
I'm am bearish BIIB, based on analyst expectations and the price tendency post-earnings over the past year.
sold for a credit and expiring Nov. 21.
Probability of expiring out-of-the-money
| NOV | Strike | OTM |
|---|---|---|
| 280 | 60.4% |
The premium is $3.45, which is 35% of the width of the position’s wings. The stock at the time of purchase was priced at $272.41.
The risk/reward ratio is 2:1.
The biggest immediate move after each of the past four earnings announcements was $85.02, and the average was $41.80.
Decision for My Account
I've opened a position on BIIB as described above.
-- Tim Bovee, Portland, Oregon, Oct. 20, 2015
References
Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, 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.License
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