[AA in Wikipedia]
Click on chart to enlarge.
|AA at 7:20 a.m. New York time, 90 days 2-hour bars|
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
I shall use the AUG monthly series of options, which trades for the last time 44 days hence, on Aug. 21.
sold for a credit and expiring Aug. 22
Probability of expiring out-of-the-money
AA is a low priced stock, below the $20 minimum I normally require. AA kicks off earnings season and highly liquid, so I always give it a look.
I can't put together a trade that will give me sufficient premium to make it worthwhile. My goals are to create a profit zone encompassing the 1 standard deviation range, the chart range and the range defined by the maximum moves immediately after earnings announcements (defined as the difference between the post-announcement open and the pre-announcement close).
The proposed trade described above meets those needs. But the premium produced is only 14 cents, with stock price at $10.70. Since it's a strange, I can't do a formal risk/reward ratio. However, the equivalent iron condor would have a risk/reward ratio of 10:1, with the premium standing at 1/10th of the position's wings.
My strong preference for such position is a ratio of 2:1 or better, with premium at 1/3 the width of the wings.
Decision for My Account
I don't intend to open a position on AA to coincide with earnings.
-- Tim Bovee, Portland, Oregon, July 8, 2015
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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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