Wednesday, October 28, 2015

GNC Analysis

Update 12/19/2015: The call options remaining in my GNC position expired without value for maximum profit.

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]


I shall use the DEC series of options, which trades for the last time 51 days hence, on Dec. 18.


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.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

Analyst opinion is neutral regarding any earnings surprise, and I shall structure a direction-neutral position.

Iron condor, short the $45 calls and long the $47.50 calls,
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


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


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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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.

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