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.
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.License
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