Shares declined b y 10.3% over 11 days, or a -340% annual rate. The options produced a 40.1% loss on debit, for a -1,332% annual rate.
The homebuilder and real-estate investment company Lennar Corp. (LEN), headquartered in Miami, Florida, publishes earnings on Monday before the opening bell.
[LEN in Wikipedia]
I shall use the OCT series of options, which trades for the last time 28 days hence, on Oct 16.
Click on chart to enlarge.
|LEN at 11:18 a.m. New York time, 30 days hourly bars|
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
short the $49 puts and long the $46 puts,
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money
The premium is $0.94, which is 31% of the width of the position’s wings.The stock at the time of purchase was priced at $52.55.
The risk/reward ratio is 2.2:1.
The zone of profit in the proposed trade covers a $3 move either way. The biggest immediate move after each of the past four earnings announcements was $3.28, and the average was $1.92.
Decision for My Account
The strike price inventory within the grid is such that I can't position the profit zone in a way that encompasses the maximum range of movement after earnings announcements for the past year. I've elected to widen one of the wings in order to increase premium to a level where it will make up for that shortage in profit zone coverage.
I've opened a position in LEN as described above.
-- Tim Bovee, Portland, Oregon, Sept. 18, 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.
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