CVX Analysis

The oil and natural gas company Chevron Corp. (CVX), headquartered in San Ramon, California, publishes earnings on Friday before the opening bell.

[CVX in Wikipedia]

CVX

I shall use the DEC series of options, which trades for the last time 50 days hence, on Dec. 18.

Ranges

Implied volatility stands at 33%, which is 2.2 times the VIX, a measure of volatility of the S&P 500 index. CVX’s volatility stands in the 56th percentile of its annual range.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	100.18	110.98	93.92
Lower	78.56	67.76	84.82
Gain/loss	12.1%	24.2%

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

I shall take a direction neutral approach.

Iron condor, short the $95 calls and long the $100 calls,
short the $80 puts and long the $75 puts,
sold for a credit and expiring Dec. 19.
Probability of expiring out-of-the-money

DEC	Strike	OTM
Upper	95	74.5%
Lower	80	79.9%

The premium is $1.21, which is 24% of the width of the position’s wings. The stock at the time of analysis was priced at $89.72.

The risk/reward ratio is 3.1:1.

The zone of profit in the proposed trade covers a $7.50 move either way. The biggest immediate move after each of the past four earnings announcements was $4.55, and the average was $2.55.

Decision for My Account

My trading funds are full committed and so I shall pass on the trade. If I had funds available, I would enter a position on CVX as described above.

-- Tim Bovee, Portland, Oregon, Oct. 29, 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.