Tuesday, October 27, 2015

MDLZ Analysis

Update 11/13/2015: I exited MDLZ with profit at 80% of its maximum potential, thereby avoiding further time risk.

Shares declined by 6.5% over 17 days, or a -140% annual rate. The options position produced a +400.0% yield on debit for a +8,588% annual rate.

The snack food and beverage company Mondelez International Inc. (MDLZ), headquartered in  Deerfield, Illinois, publishes earnings on Wednesday before the opening bell.
[MDLZ in Wikipedia]


I shall use the DEC series of options, which trades for the last time 52 days hence, on Dec. 18.


Implied volatility stands at 34%, which is 2.2 times the VIX, a measure of volatility of the S&P 500 index. MDLZ’s volatility stands in the 77th 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

I have no clear directional guidance although, for this particular earnings announcements, I'm leaning bearish for this earnings announcement and shall construct the trade that way, skewing as much to the upside as possible.

Bear call spread, short the $48 calls and long the $50 calls,
sold for a credit and expiring Dec. 19.
Probability of expiring out-of-the-money


The premium is $0.65, which is 33% of the width of the position’s wing. The stock at the time of entry was priced at $46.76.

The risk/reward ratio is 2.1:1.

The strike is $1.24 above the market price. The biggest immediate move after each of the past four earnings announcements was $2.17, and the average was 1.78.

Decision for My Account

I've opened a position on MDLZ as described above.

-- Tim Bovee, Portland, Oregon, Oct. 27, 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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