AVGO Analysis

9/19/2015: The AVGO puts expired without value for maximum profit, although the calls produced a loss. Shares rose by 14.5% over 19 days, or a +278% annual rate. The iron condor options produced a 50.2% loss on debit, for a -966% annual rate.

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Update 9/9/2015: I've exited the calls on my position after AVGO tipped above the profit zone. The position is now a bull put options spread expiring in September. 

In rising AVGO triggered a bull signal, and I have separately opened a bull put spread expiring in October. (See the Sept. 9 analysis here.)

I shall calculate profit and loss on the positions separately as they expire.
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The analog semiconductor company Avago Technologies Ltd. (AVGO), headquartered in San Jose, California and Singapore, publishes earnings on Wednesday after the closing bell.

[AVGO in Wikipedia]

AVGO

I shall use the SEP series of options, which trades for the last time 23 days hence, on Sept. 18.

Ranges

Click on chart to enlarge.

AVGO 10:06 a.m. New York time, 90 days 2-hour bars

Implied volatility stands at 63.3%, which is 1.9 times the VIX, a measure of volatility of the S&P 500 index. AVGO’s volatility stands in the 88th percentile of its most recent rise.

Ranges implied by options and the chart

Week	SD1 68.2%	SD2 95%	Chart	Earns
Upper	131.27	149.26	125.77	N/A
Lower	95.29	77.30	100.00	N/A
Gain/loss	15.9%	31.8%

Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move
The Trade

Iron condor, short the $130 calls and long the $135 calls,
short the $90 puts and long the $95 puts,
sold for a credit and expiring Sept. 19.
Probability of expiring out-of-the-money

SEP	Strike	OTM
Upper	130	85.1%
Lower	95	85.8%

The premium is $1.02, which is 25% of the width of the position’s wings.The stock at the time of purchase was priced at $112.52.

The risk/reward ratio is 4:1.

The zone of profit in the proposed trade covers a $20 move either way. The biggest immediate move after each of the past four earnings announcements was $16.57, and the average was $7.78.

Decision for My Account

I've opened a position in AVGO as described above.

-- Tim Bovee, Portland, Oregon, Aug. 26, 2015

References

My volatility trading rules can be read here.


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Disclaimer

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.

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