LVS Analysis

Update 11/12/2015: Today I discovered an error in my record keeping. I calculated results for an eit of my DEC-series position in LVS as though it were my NOV series. I have updated the DEC-series analysis and removed the erroneous material from this analysis.

Today also, I exited the NOV series as the profit rose to 52% of its potential maximum, eliminating the remaining time risk before expiration, with these results: 

Shares declined by 1.1% over 31 days, or a -13% annual rate. The options position produced a 102.1% yield on debit, for a +1,202% annual rate.

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The gaming and resort company Las Vegas Sands Corp. (LVS), headquartered in Paradise, Nevada, publishes earnings Tuesday after the closing bell.

The schedule was incorrect. LVS publishes on Wednesday, Oct. 21, after the closing bell. As I'm already in a position, there's no need to take further action. Getting in early has the impact of giving me a longer period for time decay to work in my favor. Implied volatility was slightly higher when I opened the position than it is now (on Oct. 19).

[LVS in Wikipedia]

LVS

I shall use the NOV series of options, which trades for the last time 39 days hence, on Nov. 20.

Ranges

Implied volatility stands at 46%, which is 2.6 times the VIX, a measure of volatility of the S&P 500 index. LVS’s volatility stands in the 74th percentile of its annual range.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	51.38	58.09	48.39
Lower	37.94	31.23	40.93
Gain/loss	15%	30.1%

Implied volatility 1 and 2 standard deviations; maximum earns move
The Trade

I'll take a bearish strategy based on analysts' expectations of an earnings surprise.

Bear call spread, short the $47.50 calls and long the $50 calls,
sold for a credit and expiring Nov. 21.
Probability of expiring out-of-the-money

NOV	Strike	OTM
	47.50	59.2%

The premium is $0.95, which is 38% of the width of the position’s wing. The stock at the time of entry was priced at $46.74.

The risk/reward ratio is 1.6:1.

The position becomes unprofitable at $0.76 above the entry price. The biggest immediate move after each of the past four earnings announcements was $3.73, and the average was $1.59.

Decision for My Account

I've opened a position on LVS as described above.

-- Tim Bovee, Portland, Oregon, Oct. 13, 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



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.