YHOO, BRCM, BA Analysis

Update 4/29/2015: YHOO declined for three days after earnings, rose for two, and then declined for another two. Today's drop was enough to push it into unprofitable territory, and I exited to hold down my losses as expiration approached.

Shares declined by 3.78% over eight days, or a -1609% annual rate. The options position produced a -10.3% loss on debit, for a -468% annual rate

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Update 4/23/2015: BRCM tumbled over the upper edge of the profit zone after publishing earnings, and I quickly cut losses. Shares rose by 4.8% over two days, or a +873% annual rate. The options position produced a 27.0% loss on debit, for a -4,932% annual rate.

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Update 4/22/2015: I closed my position in BA. Shares declined by 1.2% over the one-day lifespan of the position, or a -435.4% annual rate. The options produced a +77.6% yield on debit, for a +28,336% annual rate.

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The information company Yahoo! Inc. (YHOO), headquartered in Sunnyvale, California; the communications hardware company Broadcom Corp. (BRCM), headquartered in Irvine, California; and the aerospace company The Boeing Co. (BA), headquartered in Chicago, Illinois, publish earnings after the closing bell on Tuesday.

I shall use the MAY1 series of options, which trades for the last time 10 days hence, on May 1, or the APR4 series, which ends trading three days from now, on April 24.

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.

[YHOO, BRCM, BA in Wikipedia]

YHOO

Ranges

Click on chart to enlarge.

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

Implied volatility stands at 33.2%, which is 2.6 times the VIX, a measure of volatility of the S&P 500 index. YHOO’s volatility stands in the 93rd percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	47.40	49.87	46.13
Lower	42.46	39.99	44.25
Gain/loss	5.5%	11.0%

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

I've trimmed a bit from the lower side of the zone of profitability, given the upward trend of the price, thereby improving the risk/reward ratio.

Iron condor short the $46.50 calls and long the $47.50 calls,
short the $43.50 puts and long the $42.5 puts
sold for a credit and expiring May 2
Probability of expiring out-of-the-money

MAY1	Strike	OTM
Upper	46.5	73.2%
Lower	43.5	69.0%

The risk/reward ratio stands at 1.4:1. The premium is $0.37 ($0.20 on calls and $0.17 on puts), with the stock selling for $44.87.

BRCM

Ranges

Click on chart to enlarge.

BRCM at 10:20 a.m. New York time, 30 days hourly bars

Implied volatility stands at 34.3%, which is 2.6 times the VIX, a measure of volatility of the S&P 500 index. BRCMs volatility stands in the 74th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	46.25	48.74	45.27
Lower	41.29	38.80	43.41
Gain/loss	5.7%	11.4%

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


Iron condor short the $45.5 calls and long the $46.5 calls,
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	45.5	71.6%
Lower	41.5	75.8%

The risk/reward ratio stands at 1.6:1. The premium is $0.39 ($0.17 on calls and $0.22 on puts), with the stock selling for $43.70.

BA

Ranges

Click on chart to enlarge.

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

Implied volatility stands at 24.9%, which is 1.9 times the VIX, a measure of volatility of the S&P 500 index. BA’s volatility stands in the 78th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart
Upper	156.11	159.55	155.50
Lower	149.21	145.77	149.45
Gain/loss	2.3%	4.5%

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

Iron condor short the $157.50 calls and long the $160 calls,
short the $148 puts and long the $146 puts
sold for a credit and expiring April 25
Probability of expiring out-of-the-money

APR4	Strike	OTM
Upper	157.5	76.8%
Lower	148	71.1%

The risk/reward ratio stands at 1.9:1. The premium is $0.76 ($0.39 on calls and $0.37 on puts), with the stock selling for $152.57.

Decision for My Account

I've opened positions in YHOO, BRCM and BA as described above.

-- Tim Bovee, Portland, Oregon, April 21, 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.

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Based on a work at www.timbovee.com.