CSX Analysis

The rail company CSX Corp. (CSX), headquartered in Jacksonville, Florida, publishes earnings on Tuesday after the closing bell.

[CSX in Wikipedia]

CSX

I shall use the NOV series of options, which trades for the last time 39 days hence, on Nov. 20.

Ranges

Implied volatility stands at 00%, which is !0 times the VIX, a measure of volatility of the S&P 500 index. CSX’s volatility stands in the 00 percentile of its annual range.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	31.58	34.81	28.70
Lower	25.09	21.85	27.96
Gain/loss	11.4%	22.9%

Implied volatility 1 and 2 standard deviations; maximum earns move
The Trade

I'll structure my trade using a neutral strategy based on analysts' low expectations of an earnings surprise.

Iron condor, short the $31 calls and long the $32 calls,
short the $25 puts and long the $24 puts,
sold for a credit and expiring Nov. 21.
Probability of expiring out-of-the-money

NOV	Strike	OTM
Upper	31	82.7%
Lower	25	83.2%

The premium is $0.23, which is 23% of the width of the position’s wings. The stock at the time of analysis was priced at $28.33.

The risk/reward ratio is 3.5:1.

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 $0.37, and the average was $0.28.

Decision for My Account

I placed a trade on CSX as described above but was unable to sell the iron condors at an acceptable price. Therefore, I have canceled the trade and won't be opening a position on CSX.

-- Tim Bovee, Portland, Oregon, Oct. 13, 2015

References

Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

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Disclaimer

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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Based on a work at www.timbovee.com.