Shares declined by 5.2% over nine days, or a -212% annual rate. The otpions produced a -46.4% loss on debit, for a -1,880% annual rate.
The managed health care company UnitedHealth Group Inc. (UNH), headquartered in Minnetonka, Minnesota, publishes earnings on Thursday before the opening bell.
[UNH in Wikipedia]
Click on chart to enlarge.
|UNH at 10:53 a.m. New York time, 30 days hourly bars|
I shall use the JUL4 weekly series of options, which trades for the last time nine days hence, on July 24.
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
short the $120 puts and long the $118 puts,
sold for a credit and expiring July 25.
Probability of expiring out-of-the-money
The risk/reward ratio is 3:1.
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 $4.28, and the average was $3.14.
Decision for My Account
I've opened a position in UNH as described above.
-- Tim Bovee, Portland, Oregon, July 15, 2015
My volatility trading rules can be read here.
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