[ORCL in Wikipedia]ORCL
I shall use the OCT series of options, which trades for the last time 30 days hence, on Oct 16.
Click on chart to enlarge.
|ORCL at 10:35 a.m. New York time, 30 days hourly bars|
|Week||SD1 68.2%||SD2 95%||Chart||Earns|
My top priority for an earnings play is to build a position that covers the maximum range of one-day post-announcement movement for the past year. Most other criteria, I'm willing to fudge. The earnings range? Not so much.
short the $34 puts and long the $33 puts,
sold for a credit and expiring Oct. 17.
Probability of expiring out-of-the-money
The premium is $0.13, which is 13% of the width of the position’s wings.The stock at the time of analysis was priced at $38.30.
The risk/reward ratio is 6.1:1.
The zone of profit in the proposed trade covers an $4 move either way. The biggest immediate move after each of the past four earnings announcements was $4.19, and the average was $2.34.
Decision for My Account
The risk/reward ratio is too high for me to take this trade. I could increase the reward by narrowing the zone of profit, but that would increase the risk since the probability of expiring out of the money would. I could also widen the wings to increase the reward, but that would also raise the risk by increasing the maximum potential loss.
All in all, a bad deal. I won't be trading ORCL prior to its earnings announcement.
-- Tim Bovee, Portland, Oregon, Sept. 16, 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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