C Analysis

Update 7/25/2015: I exited the C call, a bear call spread, on July 22 after the stock turned against my position, and let the puts, a bull put spread, expire on July 25 without value for maximum profit.

Shares rose 4.9% over the nine-day lifespan of the position, or a +211% annual rate. The options produced a 72.3% loss on debit, for a -3,106% annual rate.

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The financial company Citigroup Inc. (C), headquartered in New York City, publishes earnings on Thursday before the opening bell.

[C in Wikipedia]

C

Ranges

Click on chart to enlarge.

C at 11:30 a.m. New York time, 30 days hourly bars

Implied volatility stands at 21.6%, which is 1.6 times the VIX, a measure of volatility of the S&P 500 index. C’s volatility stands in the 41st percentile of its most recent rise, which is low. Another measure of relative implied volatility is as a percentage of the year peak, which I like to be greater than 50%. By that measure, C comes in a 62.8% and so passes the latter test.

I shall use the JUL4 weekly series of options, which trades for the last time nine days hence, on July 24.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	58.35	60.27	57.64	58.27
Lower	54.53	52.61	52.77	54.63
Gain/loss	3.4%	6.8%

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

Iron condor, short the $58 calls and long the $59 calls,
short the $54.50 puts and long the $53.50 puts,
sold for a credit and expiring July 25.
Probability of expiring out-of-the-money

JUL4	Strike	OTM
Upper	58	76.6%
Lower	54.5	81.2%

The premium is $0.26, which is 26% of the width of the position’s wings.The stock at the time of purchase was priced at $56.50.

The risk/reward ratio is 2.7:1.

The zone of profit in the proposed trade covers a $1.75 move either way. The biggest immediate move after each of the past four earnings announcements was $1.82, and the average was $1.46.

Decision for My Account

I've opened a position in C as described above.

-- Tim Bovee, Portland, Oregon, July 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.

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Based on a work at www.timbovee.com.