The decline was well below the two standard deviation range, which encompassed 95% of expected trades. I think we can fairly all the event a Black Swan.
Shares declined by 20.9% over one day, or a -7,640% annual rate. The options position produced a 113.3% loss on debit, for a -41,367% annual rate.
The women's sportswear fashion design house and retail chain Michael Kors Holdings Ltd. (KORS), headquartered in London, publishes earnings on Wednesday prior to the opening bell.
I shall use the MAY5 Weeklys series of options, which trades for the last time three days hence, on May 29.
[KORS in Wikipedia]
Click on chart to enlarge.
|KORS at 10:40 a.m. New York time, 30 days hourly bars|
Implied volatility stands at 42.6%, which is 3.1 times the VIX, a measure of volatility of the S&P 500 index. KORS’s volatility stands in the 98th percentile of its most recent rise.
|Week||SD1 68.2%||SD2 95%||Chart|
short the $57 puts and long the $55.50 puts
sold for a credit and expiring May 30
Probability of expiring out-of-the-money
A rare position where the reward is greater than the risk; the risk/reward ratio stands at 0.9:1. The premium is $0.75 ($0.36 for the calls and $0.39 for the puts).
Decision for My Account
I've opened a position in KORS as described above.
-- Tim Bovee, Portland, Oregon, May 26, 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.
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