I exited immediately to avoid having unwanted shares dumped into my account over the weekend.
TSLA shares rose by 7.1% over nine days, for a +287% annual rate. My options positon produced a 77.8% yield on debit, for a +3,157% annual rate.
Update 5/8/2015: BABA rose sharply after earnings were published. I've exited for a loss.
Shares rose 9.5% over two days, or a +1,731% annual rate. My options position produced a 61.9% loss on debit, for a -11,303% annual rate.
The electric car company Tesla Motors Inc. (TSLA), headquartered in Palo Alto, California, publishes earnings on Wednesday after the closing bell, and the online retailer Alibaba Group Holding Ltd. (BABA), headquartered in Hangzhou, China, publishes on Thursday prior to the opening bell.
I shall use the regular monthly MAY series of options, which trades for the last time nine days hence, on May 15
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.
TSLA
Ranges
Click on chart to enlarge.
 |
| TSLA at 9:53 a.m. New York time, 180 days 4-hour bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 248.90 | 268.10 | 259.99 |
| Lower | 212.52 | 194.32 | 181.40 |
| Gain/loss | 7.9% | 15.% |
The Trade
TSLA's chart provides a wide support/resistance range.
short the $210 puts and long the $207.50 puts
sold for a credit and expiring May 16
Probability of expiring out-of-the-money
| MAY | Strike | OTM |
|---|---|---|
| Upper | 250 | 76.3% |
| Lower | 210 | 79.3% |
The risk/reward ratio stands at 1.4:1. The premium is $0.97 ($0.54 on the calls and $0.43 on the puts).
BABA
Ranges
Click on chart to enlarge.
 |
| BABA at 10:04 a.m. New York time, 30 days hourly bars |
| Week | SD1 68.2% | SD2 95% | Chart |
|---|---|---|---|
| Upper | 84.81 | 89.72 | 87.69 |
| Lower | 74.99 | 70.08 | 77.77 |
| Gain/loss | 6.2% | 12.3% |
The Trade
short the $75 puts and long the $73 puts
sold for a credit and expiring May 16
Probability of expiring out-of-the-money
| MAY | Strike | OTM |
|---|---|---|
| Upper | 85 | 77.0% |
| Lower | 75 | 72.5% |
The risk/reward ratio stands at 1.2:1. The premium is $0.88 ($0.45 the calls and $0.43 the puts).
Decision for My Account
I've opened positions in TSLA and BABA as described above.
-- Tim Bovee, Portland, Oregon, May 6, 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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