The stock price declined by 7.7% over eight days, or a -349% annual rate. The options produced a +57.8%yield on debit, for a +2,639% annual rate.
Update 7/30/2015: SWKS was at the edge of profit as expiration approached and I exited the puts, transforming the iron condor into a bear call spread. I'll calculate profit/loss on the position after it expires on Saturday.
The semiconductor company Skyworks Solutions Inc. (SWKS), headquartered in Woburn, Massachusetts, publishes earnings on Thursday after the closing bell.
[SWKS in Wikipedia]
Click on chart to enlarge.
|SWKS at 11:55 a.m. New York time, 30 days hourly bars|
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
I shall use the JUL5 weekly series of options, which trades for the last time eight days hence, on July 31.
short the $95 puts and long the $91 puts,
sold for a credit and expiring Aug. 1.
Probability of expiring out-of-the-money
The premium is $1.31, which is a third of the width of the position’s wings.The stock at the time of purchase was priced at $103.37.
The risk/reward ratio is 1.9:1.
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 $6.53, and the average was $4.09.
Decision for My Account
I've opened a position in SWKS as described above.
-- Tim Bovee, Portland, Oregon, July 23, 2015
My volatility trading rules can be read here.
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