Shares rose 4.6% over eight days, although most of the rise came in a single minute, or a +208.2% annual rate. The options position produced a -151.5% loss on debit, for a -6,913% annual .rate
Update 5/4/2015: GILD rose sharply over two days following its earnings announcement and reached the upper limit of profitability. I sold to avoid what threatened to develop into a loss.
Shares of GILD rose by 5.1% over four days, or a +462% annual rate. The options position was a loss, gaining nothing and losing nothing during its lifespan.
CVX continued its decline, which began before the announcement, and had neared the lower limit of profit; I took the profit.
Shares of CVX declined by 2.6% over for days, or a -241% annual rate. The options produced a 14.5% yield on debit, for a +1,322% annual rate.
The payments company Visa Inc. (V) and the pharmaceutical house Gilead Sciences Inc. (GILD), both headquartered in Foster City, California, publish earnings after the closing bell on Thursday, and the oil and natural gas company Chevron Corp. (CVX), headquartered in San Ramon, California, publishes before the opening bell on Friday.
I shall use the MAY2 series of options, which trades for the last time eight days hence, 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.
V
Ranges
Click on chart to enlarge.
 |
| V at 11:25 a.m. New York time, 30 days hourly bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 69.09 | 71.49 | 69.98 |
| Lower | 64.29 | 51.90 | 64.35 |
| Gain/loss | 3/6% | 7.2% |
The Trade
I've left nine cents at the top of the one standard deviation range out of the profit zone in order to obtain a better risk/reward ratio.
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 | 69 | 77.5% |
| Lower | 64 | 77.2% |
The risk/reward ratio stands at 2:1. The premium is $0.33 ($0.18 for the calls and $0.15 for the puts), with shares trading at $66.62.
GILD
Ranges
Click on chart to enlarge.
 |
| GILD at 11:35 a.m. New York time, 30 days hourly bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 107.1 | 112.32 | 105.75 |
| Lower | 96.87 | 91.72 | 100.41 |
| Gain/loss | 5.1% | 10.1% |
The Trade
short the $97 puts and long the $95 puts
sold for a credit and expiring May 9
Probability of expiring out-of-the-money
| MAY2 | Strike | OTM |
|---|---|---|
| Upper | 107 | 77.6% |
| Lower | 97 | 73.8% |
The risk/reward ratio stands at 1.8:1. The premium is $0.68 ($0.31 for the calls and $0.37 for the puts), with shares trading for $101.70.
CVX
Ranges
Click on chart to enlarge.
 |
| CVX at 11:43 a.m. New York time, 90 days 2-hour bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 114.65 | 118.41 | 112.93 |
| Lower | 107.15 | 103.39 | 100.66 |
| Gain/loss | 3.4% | 6.8% |
The Trade
This is a difficult to chart to fit a trade into. Chart support is quite a bit lower than the lower boundary of the one standard deviation range. In order to get a reasonable risk/reward ratio, I've used the chart resistance level for the top boundary of the profit zone, and the 1SD's lower boundary for the floor on profit. The probabilities of expiring out of the money for maximum profit are still high for both the calls and the puts.
short the $108 puts and long the $106 puts
sold for a credit and expiring May 9
Probability of expiring out-of-the-money
| MAY2 | Strike | OTM |
|---|---|---|
| Upper | 113 | 68.9% |
| Lower | 108 | 75.1% |
The risk/reward ratio stands at 1.9:1. The premium is $0.69 ($0.47 for the calls and $0.22 for the puts), with shares trading for $111.20.
Decision for My Account
I've opened positions in V, GILD and CVX as described above.
-- Tim Bovee, Portland, Oregon, April 30, 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
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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