Update 8/14/2015: I've opened a position in HD as described below, but with a slightly lower premium. Here are the numbers for the actual trade:
The premium is $0.37, which is 19% of the width of the position’s wings.The stock at the time of analysis was priced at $119.59.
The risk/reward ratio is 4.6:1.
The home improvement retail chain Home Depot Inc. (HD), headquartered in Cobb County, Georgia, publishes earnings on Tuesday before the opening bell.
[HD in Wikipedia]
I shall use the AUG series of options, which trades for the last time seven days hence, on Aug. 21.
Click on chart to enlarge.
|HD after Aug. 13 close, 30 days hourly bars|
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
short the $114 puts and long the $112 puts,
sold for a credit and expiring Aug. 22.
Probability of expiring out-of-the-money
The premium is $0.42, which is 21% of the width of the position’s wings.The stock at the time of analysis was priced at $119.02.
The risk/reward ratio is 3.8:1.
The zone of profit in the proposed trade covers a $6 move either way. The biggest immediate move after each of the past four earnings announcements was $4.64, and the average was $3.29.
Decision for My Account
I shall attempt to open a position on Friday, as described above.
-- Tim Bovee, Fukuoka, Japan, Aug. 14, 2015
My volatility trading rules can be read here.
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