SBUX was unprofitable for awhile but moved back to profitability, and I exited to avoid a late return to loss. The shares gained 0.9% over seven days, or a +44% annual rate. The options position produced a +36.1% yield on debit, for a +1,881% annual rate.
MSFT made statistically unusual moves after their earnings were announced, and additionally, one option contract was assigned, adding to the complexity.
MSFT shares rose by 14.1% over seven days, or a 733% annual rate. The options produced a -138.4% loss on debut, for a -7,218% annual rate. The shares from the assigned contract produced a -9.8% loss on debit for a -511% annual rate
Update 4/29/2015: AMZN gapped up to well above the two standard deviation range after earnings were published. Although it declined a bit thereafter, I cut my losses as expiration approached.
Shares rose by 9.7% over six days, or a +590% annual rate. The options position produced a 77.6% loss on debit, for a -4,718% annual rate.
This seems to happen a lot with the hot tech giants, and the lesson learned may be that its best to either do a directional play, such as a bull put spread, or some other structure, such as a strangle. I'll be looking at that issue over the weekend.
The online retailer Amazon.com Inc. (AMZN), and the coffee house chain Starbucks Corp. (SBUX), both headquartered in Seattle, Washington, and the software/hardware company Microsoft Corp. (MSFT), headquartered in nearby Redmond, Washington, all publish earnings after the closing bell on Thursday.
I shall use the MAY1 series of options, which trades for the last time eight days hence, on May 1
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.
AMZN
Ranges
Click on chart to enlarge.
 |
| AMZN at 10:00 a.m. New York time, 30 days hourly bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 415.91 | 442.24 | 394.60 |
| Lower | 363.25 | 336.92 | 374.40 |
| Gain/loss | 6.8% | 13.5% |
The Trade
short the $360 puts and long the $355 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money
| MAY1 | Strike | OTM |
|---|---|---|
| Upper | 415 | 72.8% |
| Lower | 360 | 73.7% |
The risk/reward ratio stands at 1:1. The premium is $2.40 ($1.42 for the calls and $1.03 for the puts), with shares trading at $389.62.
SBUX
Ranges
Click on chart to enlarge.
 |
| SBUX at 10:15 a.m. New York time, 30 days hourly bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 50.41 | 52.28 | 48.89 |
| Lower | 47.65 | 44.78 | 46.28 |
| Gain/loss | 3.9% | 7.7% |
The Trade
short the $47.50 puts and long the $46.50 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money
| MAY1 | Strike | OTM |
|---|---|---|
| Upper | 50 | 73.6% |
| Lower | 47.5 | 64.5% |
The risk/reward ratio stands at 1.5:1. The premium is $0.42 ($0.18 for the calls and $0.24 for the puts), with shares trading for $48.63.
MSFT
Ranges
Click on chart to enlarge.
 |
| MSFT at 10:42 a.m. New York time, 90 days 2-hour bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 44.61 | 46.17 | 44.30 |
| Lower | 41.51 | 39.95 | 40.12 |
| Gain/loss | 3.6% | 7.2% |
The Trade
short the $41.5 puts and long the $40.5 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money
| MAY1 | Strike | OTM |
|---|---|---|
| Upper | 44.5 | 75.4% |
| Lower | 41.5 | 74.8% |
The risk/reward ratio stands at 1.9:1. The premium is $0.32 ($0.17 for calls and $0.16 for puts), with shares trading at $43.06.
Decision for My Account
I've opened positions in AMZN, SBUX and MSFT as described above.
-- Tim Bovee, Portland, Oregon, April 23, 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.License
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Based on a work at www.timbovee.com.
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