Shares rose 4.5% over nine days, or a +183% annual rate. The options position produced a -271.0% loss on debit, for a -10,984% annual rate.
Update 5/6/2015: ETN moved above the profit zone after earnings were announced. I have begun unraveling the account piecemeal in hopes of recouping some of the losses. I won't calculate results until the position is entirely complete.
I exited the in-the-money call portion of the iron condor, selling it for a loss. I've retained the put portion, which is now an out-of-the-money bull put spread, which I anticipate will expire worthless for maximum profit at the end of the week.
Update 5/2/2015: GPRO expired out of the money for maximum profit. Shares rose by 9.5% over three days, or a +1,151% annual rate. The options position produced a 100.0% yield on debit, for a +12,167% annual rate.
Update 4/30/2015: TWTR shares took a sharp dive after the company's earnings were a) leaked while the market was still open, b) showed weaker-than-expected financials, and c) were accompanied by guidance to reduce expectations.
Shares declined by 23.3% over two days, most of it immediately after earnings were published, or a -4,254% annual rate. The options positions produced a -155.7% loss on debit, for a -28,415% annual rate.
The social networking platform Twitter Inc. (TWTR), headquartered in San Francisco, California, and the wearable and mountable camera maker GoPro Inc. (GPRO), headquartered in San Mateo, California, publish earnings after the closing bell on Tuesday, and the producer of power management systems Eaton Corp. PLC (ETN), headquartered in Cleveland, Ohio, publishes on Wednesday before the opening bell.
I shall use the MAY1 series of options, which trades for the last time three days hence, on May 1, and the MAY2 series, which completes trading in 10 days, on May 8.
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.
TWTR
Ranges
Click on chart to enlarge.
 |
| TWTR at 9:37 a.m. New York time, 30 days hourly bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 54.66 | 57.34 | 53.49 |
| Lower | 49.32 | 46.64 | 50.19 |
| Gain/loss | 5.1% | 10.3% |
The Trade
The nature of the options grid has allowed me the rare pleasure of constructing a trade that covers the two standard deviation range, implying that 95% over trades will fall between the boundaries.
short the $46.5 puts and long the $44.5 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money
| MAY1 | Strike | OTM |
|---|---|---|
| Upper | 56 | 754% |
| Lower | 46.5 | 77.4% |
The risk/reward ratio stands at 1.4:1. The premium is $0.79 ($0.36 for the calls and 0.43 for the puts).
GPRO
Ranges
Click on chart to enlarge.
 |
| GPRO at 9:54 a.m. New York time, 30 days hourly bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 48.81 | 51.43 | 46.95 |
| Lower | 43.57 | 40.95 | 43.62 |
| Gain/loss | 5.7% | 11.3% |
The Trade
I stretched the upside to cover the two standard deviation range with the profit zone. The downside covers the one standard deviation range.
short the $42.50 puts and long the $40.50 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money
| MAY1 | Strike | OTM |
|---|---|---|
| Upper | 51.5 | 85.6% |
| Lower | 42.5 | 70.8% |
The risk/reward ratio stands at 1.9:1. The premium is $0.67 ($0.21 for the calls and $0.46 for the puts).
ETN
Ranges
Click on chart to enlarge.
 |
| ETN at 10:24 a.m. New York time, 30 days hourly bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 71.18 | 74.00 | 70.25 |
| Lower | 65.54 | 62.72 | 66.23 |
| Gain/loss | 4.1% | 8.3% |
The Trade
Given the downward tilt today -- the price pierced the nearer-in alternate support level, I've trimmed the profit zone at the top while expanding the lower boundary.
In order to get sufficient open interest I move out a week to the MAY2 Weeklys series.
short the $64 puts and long the $63 puts
sold for a credit and expiring May 9
Probability of expiring out-of-the-money
| MAY2 | Strike | OTM |
|---|---|---|
| Upper | 70 | 71.1% |
| Lower | 64 | 81.7% |
The risk/reward ratio stands at 1.7:1. The premium is $0.34 ($0.24 the calls and $0.10 the puts).
Decision for My Account
I've opened positions in TWTR, GPRO and ETN as described above.
-- Tim Bovee, Portland, Oregon, April 28, 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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