Tim Bovee, Private Trader: ADBE Analysis

Monday, June 15, 2015

ADBE Analysis

Update 6/17/2015: ADBE's implied volatility dropped sharply after earnings were published, and I've
exited both the Strangle and the Iron Condor positions for a profit.

Shares rose by 0.7% over two days, or a +119% annual rate. The Strangle options produced a 55.6% yield on debit, for a +10,139% annual rate. The Iron Condor produced a 90.1% yield on debit, or a +16,448% annual rate.

The software company Adobe Systems Inc. (ADBE), headquartered in San Jose, California, publishes earnings after the closing bell on Tuesday.

I shall use the JUN monthly series of options, which trades for the last time four days hence, on June 19, or the JUL monthlies, which complete their trading on July 17.

[ADBE in Wikipedia]

ADBE

Ranges

Click on chart to enlarge.

ADBE at 10:48 a.m. New York time, 30 days hourly bars

Implied volatility stands at 32.5%, which is 2.1 times the VIX, a measure of volatility of the S&P 500 index. ADBE’s volatility stands in the 98th percentile of its most recent rise.

ADBE has on average moved $4.02 immediately after the past four earnings announcements, or 5.7%. The maximum move was $6.28, or 9.3%.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	81.07	83.74	80.74	82.43
Lower	75.75	73.08	76.95	74.39
Gain/loss	3.4%	6.8%

Implied volatility 1 and 2 standard deviations; chart support and resistance, average earns move
The Trade

Strangle, short the $85 calls and long the $70 puts,
sold for a credit and expiring July 18
Probability of expiring out-of-the-money

JUL	Strike	OTM
Upper	85	83.3%
Lower	70	85.2%

The premium is $1.18.The stock at the time of purchase was priced at $78.46. The zone of profit in the proposed trade covers a $7.50 move either way.

Iron condor, short the $82.50 calls and long the $85 calls,
short the $75 puts and long the $72.50 puts,
sold for a credit and expiring June 20
Probability of expiring out-of-the-money

JUN	Strike	OTM
Upper	82.5	80.0%
Lower	75	73.1%

The premium is $0.81, which is a third of the width of the position’s wings.The stock at the time of purchase was priced at $78.50. The zone of profit in the proposed trade covers a $3.75 move either way.

Decision for My Account

I've opened both the strangle and the iron condor positions as described above.

-- Tim Bovee, Portland, Oregon, June 15, 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.