LRCX Analysis

The semiconductor wafer fabrication equipment and services company Lam Research Corp. (LRCX), headquartered in Fremont, California, publishes earnings on Thursday before the opening bell.

[LRCX in Wikipedia]

LRCX

I shall use the DEC series of options, which trades for the last time 58 days hence, on Dec. 18.

Ranges

Implied volatility stands at 41%, which is 2.7 times the VIX, a measure of volatility of the S&P 500 index. LRCX’s volatility stands in the 60th percentile of its annual range.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	86.30	98.43	80.03
Lower	62.06	49.93	68.33
Gain/loss	16.3%	32.7%

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

I'm direction-neutral in my assessment of LRCX.

Iron condor, short the $82.50 calls and long the $85 calls,
short the $62.50 puts and long the $60 puts,
sold for a credit and expiring Dec. 19.
Probability of expiring out-of-the-money

DEC	Strike	OTM
Upper	82.50	80.0%
Lower	62.50	81.8%

The premium is $0.85, which is 34% of the width of the position’s wings. The stock at the time of analysis was priced at $74.41.

The risk/reward ratio is 1.8:1.

The zone of profit in the proposed trade covers a $10 move either way. The biggest immediate move after each of the past four earnings announcements was $5.85, and the average was $2.90.

Decision for My Account

I've placed an order on LRCX as described above, but couldn't obtain a fill at a price that met my needs. The order expired without being completed.

-- Tim Bovee, Portland, Oregon, Oct. 21, 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.

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Based on a work at www.timbovee.com.