FDX Analysis

Update 6/18/2015: FDX dropped sharply after earnings were published, and I exited to preserve my profits.

Shares declined by -2.6% over two days, or a -466% annual rate. The options position produced a 31.2% yield on debit, for a +5,691% annual rate.

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The delivery service FedEx Corp. (FDX), headquartered in Memphis, Tennessee, publishes earnings before the opening bell on Wednesday.

I shall use the JUL monthly series of options, which trades for the last time 31 days hence, on July 17, and the JUN series, which completes trading three days from now, on June 19.

[FDX in Wikipedia]

FDX

Ranges

Click on chart to enlarge.

FDX at 10:15 a.m. New York time, 30 days hourly bars

Implied volatility stands at 22.1%, which is 1.4 times the VIX, a measure of volatility of the S&P 500 index. FDX’s volatility stands in the 89th percentile of its most recent rise.

Using the options expiring July 18 in calculating the implied ranges,

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	192.96	204.79	185.19	187.23
Lower	169.28	157.45	173.07	178.10
Gain/loss	6.5%	13.1%

Implied volatility 1 and 2 standard deviations; chart support and resistance, average earns move
Using the options expiring June 20, I get these ranges,

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	184.74	188.37	185.19	187.23
Lower	177.50	173.87	173.07	178.10
Gain/loss	2.0%	4.0%

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

Strangle, short the $195 calls and long the $165 puts,
sold for a credit and expiring July 18
Probability of expiring out-of-the-money

JUL	Strike	OTM
Upper	195	87.8%
Lower	165	90.8%

The buying power effect for one contract is $2,399, which is quite high.

The initial premium ask is $1.21.The stock at the time of analysis was priced at $182.51.

The zone of profit in the proposed trade covers a $15 move either way. The biggest immediate move after each of the past four earnings announcements was $4.57, and the average was $5.04.

Iron condor, short the $187.50 calls and long the $190 calls,
short the $177.50 puts and long the $175 puts,
sold for a credit and expiring June 20
Probability of expiring out-of-the-money

JUN	Strike	OTM
Upper	187.5	75.0%
Lower	177.5	75.6%

The premium is $0.93, which is one third the width of the position’s wings.The stock at the time of purchase was priced at $182.39. There is no buying power effect.

The zone of profit in the proposed trade covers a $5 move either way, about the average for the past four earnings announcements.

Decision for My Account

The buying power impact of the strangles is far higher than I want to commit to, so I'm passing on that trade. I have opened the iron condor position as described above.

-- Tim Bovee, Portland, Oregon, June 16, 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.