Shars declined by 20.4% over 52 days, or a -143% annual rate. Over the lifetime of the position, the options produced a -31.3% loss on debit, or a -219% annual rate.
Update 12/1/2015: GNC fell below the lower boundary of its iron condor into unprofitable territory. I'm bearish the stock, and indeed the market as a whole, so I exited the puts, transforming the position into a bear call spread profitable anywhere below $47.50.
This strategy mitigates or erases the loss, although the potential profit is quite small. My strategy will be to let the calls expire worthless on Dec. 18.
The health and wellness products retailer GNC Holdings Inc. (GNC), headquartered in Pittsburgh, Pennsylvania, publishes earnings on on Thursday before the opening bell.
[GNC in Wikipedia]
GNC
I shall use the DEC series of options, which trades for the last time 51 days hence, on Dec. 18.
Ranges
Implied volatility stands at 62%, which is 4.1 times the VIX, a measure of volatility of the S&P 500 index. GNC’s volatility stands in the 74th percentile of its annual range.
| Week | SD1 68.2% | SD2 95% | Earns |
|---|---|---|---|
| Upper | 46.65 | 55.42 | 43.18 |
| Lower | 29.09 | 20.32 | 32.56 |
| Gain/loss | 23.2% | 46.4% |
The Trade
Analyst opinion is neutral regarding any earnings surprise, and I shall structure a direction-neutral position.
short the $30 puts and long the $27.50 puts,
sold for a credit and expiring Dec. 19.
Probability of expiring out-of-the-money
| DEC | Strike | OTM |
|---|---|---|
| Upper | 45 | 85.9% |
| Lower | 30 | 80.9% |
The premium is $0.55, which is 22% of the width of the position’s wings. The stock at the time of entry was priced at $38.72.
The risk/reward ratio is 3.5:1.
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 $5.31, and the average was $4.66.
Decision for My Account
I've opened a position on GNC as described above.
-- Tim Bovee, Portland, Oregon, Oct. 28, 2015
References
Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.
Alerts
Two social media feeds provide notification whenever something new is posted.
- On Twitter, Follow Tim Bovee: https://twitter.com/TimBovee
- On Facebook, Like Private Trader: https://www.facebook.com/PrivateTrader
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
All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Based on a work at www.timbovee.com.
No comments:
Post a Comment