Wednesday, May 13, 2015

CSCO Analysis

Update 5/14/2015: I closed the position in CSCO on May 14, one day after entry. It had come near to maximum profit, nearly all of the gain due to a collapse of implied volatility from 20% down to 19%. It's a perfect example of what I like to see in an earnings play.

Shared lost 0.6% over one day, or a -212% annual rate. The otpions position produced a 76.8% yield on debit, for a +27,6752% annual rate.

True, I could have held on for a week plus change until expiration, and perhaps have pocketed a 100% profit. But why the take risk?

The networking equipment company Cisco Systems Inc. (CSCO), headquartered in San Jose, California, publishes earnings Wednesday after the closing bell.

I shall use the MAY4 Weeklys series of options, which trades for the last time nine days hence, on May 22.

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.

[CSCO in Wikipedia]



Click on chart to enlarge.
CSCO at 11:45 a.m. New York time, 90 days two-hour bars
Implied volatility stands at 27.8%, which is double the VIX, a measure of volatility of the S&P 500 index. CSCO’s volatility stands in the 79th percentile of its most recent rise.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%Chart
Implied volatility 1 and 2 standard deviations; chart support and resistance

The Trade
Iron condor short the $30.50 calls and long the $31.50 calls,
short the $28 puts and long the $27 puts
sold for a credit and expiring May 23
Probability of expiring out-of-the-money


The risk/reward ratio stands at 1.9:1. The premium is $0.33 ($0.17 for the calls and $0.16 for the puts).

Decision for My Account

I've opened an account on CSCO as described above.

-- Tim Bovee, Portland, Oregon, May 13, 2015


My volatility trading rules can be read here.


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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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