[PM in Wikipedia]
Click on chart to enlarge.
|PM at 11:10 a.m. New York time, 30 days hourly bars|
I shall use the AUG monthly series of options, which trades for the last time 37 days hence, on Aug. 21.
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
I'm unable to provide sufficient coverage of the maximum historical earnings move using a hedged iron condor position. So I've built using the strangle, which has no limit on the loss.
sold for a credit and expiring Aug. 22
Probability of expiring out-of-the-money
The premium is $0.40. The stock at the time of analysis was priced at $82.83.
The zone of profit in the proposed trade covers a $7.50 move either way. The biggest immediate move after each of the past four earnings announcements was $6.83, and the average was $2.29.
Decision for My Account
The proposed trade has a premium that is relatively small compared to the buying power effect. A single contract takes $948 off of the buying power in return for a 40-cent premium. I don't have a guideline for that ratio, but this one feels too high for me.
For that reason, I'm passing on the trade and won't be opening a position to coincide with PM's earnings announcement.
-- Tim Bovee, Portland, Oregon, July 15, 2015
My volatility trading rules can be read here.
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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.
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.License
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