FEYE Analysis

Update 7/30/2015: Implied volatility dropped to 58.6 in Thursday's trading, pushing the premium down and the risk/reward ratio up to 3:1, which is too high by my standards. The decline moved volatility down into the 47th percentile of its most recent rise. I'm declining to take the trade.

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The cybersecurity company FireEye Inc. (FEYE), headquartered in Milpitas, California, publishes earnings on Thursday after the closing bell.

[FEYE in Wikipedia]

FEYE

I shall use the AUG1 weekly series of options, which trades for the last time eight days hence, on Aug. 7.

Ranges

Click on chart to enlarge.

FEYE after the July 29 close, 30 days hourly bars

Implied volatility stands at 59.6%, which is 4.8 times the VIX, a measure of volatility of the S&P 500 index. FEYE’s volatility stands in the 83rd percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	51.74	55.93	50.94	52.67
Lower	43.34	39.15	44.52	42.71
Gain/loss	8.8%	17.7%

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

Iron condor, short the $53 calls and long the $54 calls,
short the $42.50 puts and long the $41.50 puts,
sold for a credit and expiring Aug. 8.
Probability of expiring out-of-the-money

AUG1	Strike	OTM
Upper	53	80.8%
Lower	42.5	76.4%

The premium at the time of analysis was $0.37, which is 37% of the width of the position’s wings.The stock at the time of purchase was priced at $47.54.

The risk/reward ratio is 1.7:1.

The zone of profit in the proposed trade covers a $5.25 move either way. The biggest immediate move after each of the past four earnings announcements was $5.13, and the average was $3.76.

Decision for My Account

I intend to open a position in FEYE as described above. The analysis was done prior to the market open on the day I shall trade, and I'll update this analysis if events force a change in plans.

-- Tim Bovee, Fukuoka, Japan, July 30, 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.