Friday, September 11, 2015

GMCR Analysis

Update 10/6/2015: I exited the GMCR puts, ending the position entirely.

Shares declined by 12.7% over 23 days, or a -206% annual rate. The options position produced a -54.6% loss on debit, for a -885% annual rate.

Update 10/1/2015: GMCR slipped below the profit zone and I have exited the puts, transforming the position into a bear call spread. I'll calculate results when the entire position has been exited.

I am considering the coffee and coffeemaker company Keurig Green Mountain Inc. (GMCR), headquartered in Waterbury, Vermont, as a potential iron condor because of its high implied volatility relative to its annual range.

[GMCR in Wikipedia]


I shall use the OCT series of options, which trades for the last time 35 days hence, on Oct 16.


Click on chart to enlarge.
GMCR at 11:58 a.m. New York time, 1 year daily bars
Implied volatility stands at 44.5%, which is 1.8 times the VIX, a measure of volatility of the S&P 500 index. GMCR’s volatility stands in the 62nd percentile of its annual range.

Ranges implied by options and the chart
WeekSD1 68.2%SD2 95%ChartEarns
Implied volatility 1 and 2 standard deviations; chart support and resistance, maximum earns move

The Trade

GMCR's long decline from November 2014 has bounced up from its Aug. 24 low. For the shorter term I am unable to say whether the decline will resume or the correction continue higher. For that reason, I've chosen an iron condor as my vehicle.

Iron condor, short the $67.50 calls and long the $70 calls,
short the $52.50 puts and long the $50 puts,
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money


The premium is $0.60, which is 24% of the width of the position’s wings.The stock at the time of purchase was priced at $60.60.

The risk/reward ratio is 3.2:1.

The zone of profit in the proposed trade covers a $7.50 move either way, or 3.2 times the average true range.

Decision for My Account

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

-- Tim Bovee, Portland, Oregon, Sept. 11, 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.

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