FB, GM, PG Analysis

Update 4/29/2015: GM declined slightly on the fifth day after earnings were published it, bringing my position to the brink of profitability. I exited.

Shares declined by 3.3% over seven days, or a -172% annual rate. The options position produced a +29.0% yield on debit, for a +1,509% annual rate.

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Update 4/27/2015: I exited FB and PG, both profitably, as their prices toyed with the edge of the profit zone after earnings were published.

FB shares declined by 1.3% over five days, or a -93% annual rate. My options position produced a 81.8% yield on debit, for a +5,973% annual rate.

PG shares declined by 2.3% over five days, or a -167.6% annual rate. My options position produced a +25.7% yield on debit, for a +1,877% annual rate 

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The social networking company Facebook Inc. (FB), headquartered in Menlo Park, California, publishes earnings on Wednesday after the closing bell, and the automaker General Motors Co. (GM), headquartered in Detroit, Michigan, and the consumer packaged goods manufacturer Procter & Gamble Co. (PG), headquartered in Cincinnati, Ohio, publish on Thursday prior to the opening bell.

I shall use the MAY1 series of options, which trades for the last time nine 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.

[FB, GM, PG in Wikipedia]

FB

Ranges

Click on chart to enlarge.

FB at 10:48 a.m. New York time, 30 days hourly bars

Implied volatility stands at 34.4%, which is 2.5 times the VIX, a measure of volatility of the S&P 500 index. FB’s volatility stands in the 69th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	88.25	92.76	84.90
Lower	79.21	74.70	80.37
Gain/loss	5.4%	10.8%

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


Iron condor short the $88.50 calls and long the $89.50 calls,
short the $79.50 puts and long the $78.50 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money

MAY1	Strike	OTM
Upper	88.50	78.0%
Lower	79.50	75.0%

The risk/reward ratio stands at 1.3:1. The premium is $0.43 ($0.21 for the calls and $0.22 for the puts), with the stock selling for $83.90.

GM

Ranges

Click on chart to enlarge.

GM at 10:55 a.m. New York time, 30 days hourly bars

Implied volatility stands at 26.1%, which is 1.9 times the VIX. GM’s volatility stands at the top of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	38.42	92.76	37.45
Lower	35.40	74.70	35.64
Gain/loss	4.12%	10.8%

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

I biased the trade toward greater profit to the downside. For both boundaries of the profit zone, I used the chart range rather than the one standard deviation range in order to gain an acceptable risk/reward ratio.

Iron condor short the $37.50 calls and long the $38.50 calls,
short the $35.50 puts and long the $34.50 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money

MAY1	Strike	OTM
Upper	37.5	66.4%
Lower	35.5	75.2%

The risk/reward ratio stands at 1.6:1. The premium is $0.38 ($0.25 for the calls and $0.13 for the puts), with the stock trading at $36.77.

PG

Ranges

Click on chart to enlarge.

PG at 11:05 a.m. New York time, 30 days hourly bars

Implied volatility stands at 16.4%, which is 1.2 times the VIX. PG’s volatility stands in the 59th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	84.78	86.91	84.20
Lower	80.52	78.39	82.03
Gain/loss	2.6%	5.2%

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

I trimmed the zone of profit slightly at the top in order to get a better risk/reward ratio.

Iron condor short the $84 calls and long the $85 calls,
short the $80.50 puts and long the $79.50 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money

MAY1	Strike	OTM
Upper	84	76.7%
Lower	80.5	74.8%

The risk/reward ratio stands at 1.5:1. The premium is $0.34 ($0.18 for the calls and $0.17 for the puts), with the stock selling for $82.76

Decision for My Account

I've opened positions in FB, GM and PG as described above.

-- Tim Bovee, Portland, Oregon, April 22, 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.