Shares rose by 2.9% over 42 days, or a +25% annual rate. The options produced a 1,177.8% yield on debit for a +10.235% annual rate.
The food and beverage company PepsiCo Inc. (PEP), headquartered in Purchase, New York, publishes earnings on July 9 before the opening bell.
[PEP in Wikipedia]
Click on chart to enlarge.
|PEP at 10:45 a.m. New York time, 30 days hourly bars|
The price broke above the prior $95.99 resistance level this morning, pushing resistance up by 67 cents.
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
I shall use the AUG monthly series of options, which trades for the last time !0 days hence, on Aug. 21.
sold for a credit and expiring Aug. 22
Probability of expiring out-of-the-money
A position on PEP is hard to construct because the gap between strikes is $5, while the price isn't all that high. It's at the low end of the $5 strike spread symbols.
The premium is $1.17. The stock at the time of purchase was priced at $96.09.
The zone of profit in the proposed trade covers a $5 move either way. The biggest immediate move after each of the past four earnings announcements was $2.09, and the average was $1.55.
In constructing the position, I my first priority has been to place the earnings range within the zone of profit while pushing the premium above $1. The cost of achieving that end is that $2.09 at the top of the one standard deviation range is unprofitable
Decision for My Account
I have opened a position in PEP as described above.
-- Tim Bovee, Portland, Oregon, July 8, 2015
My trading rules can be read here.
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