[SAVE in Wikipedia]
Click on chart to enlarge.
|SAVE at 11:20 a.m. New York time, 30 days hourly bars|
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
I shall use the AUG monthly series of options, which trades for the last time 29 days hence, on Aug. 21.
The price is rising but is in the middle of the range between support and resistance on the chart. I've chosen to sacrifice some premium by placing all but a few cents of maximum post-earnings movement range of the past year into the zone of top profit. That also covers the one standard deviation range.
short the $55 puts and long the $50 puts,
sold for a credit and expiring Aug. 22.
Probability of expiring out-of-the-money
The risk/reward ratio is 6,1:1.
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 $7.22, and the average was $4.28.
Decision for My Account
The high risk-reward ratio is the stumbling point. And it's inevitable, give the structure of SAVE's options grid, with strike price $5 apart on a stock priced in the double digits.
I'm passing on this trade. I won't be opening a position in SAVE to coincide with its next earnings announcement.
-- Tim Bovee, Portland, Oregon, July 23, 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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