Update 8/13/2015: CAM moved into unprofitable territory to the upside. I've sold the calls portion of the iron condor, transforming the position into a bull put spread profitable down to $42.50. I'll calculate profit and loss when I've exited the puts.
The manufacturer of flow control devices for the oil and gas industry, Cameron International Corp. (CAM), headquartered in Houston, Texas, publishes earnings on Thursday before the opening bell.
[CAM in Wikipedia]
Click on chart to enlarge.
|CAM at 12 p.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 31 days hence, on Aug. 21.
short the $42.50 puts and long the $40 puts,
sold for a credit and expiring Aug. 22.
Probability of expiring out-of-the-money
The premium is $0.75, which is about a third of the width of the position’s wings.The stock at the time of purchase was priced at $46.83.
The risk/reward ratio is 2.2:1.
The zone of profit in the proposed trade covers a $3.25 move either way. The biggest immediate move after each of the past four earnings announcements was $3.76, and the average was $2.15.
Decision for My Account
Two characteristics make this trade different than the other five that I've done today: CAM lacks weekly options, forcing me into a longer-term position but with a higher premium, and the strike interval is $2.50, requiring a sacrifice of granularity in setting up the trade.
I've left some of the upper side of the maximum earnings movement range outside of the profit zone but provided coverage beyond that range below the zone. That's in line with the downtrending nature of the stock. The average range is entirely covered.
I've opened a position in CAM as described above.
-- Tim Bovee, Portland, Oregon, July 22, 2015
My volatility trading rules can be read here.
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