MON Analysis

Update 10/13/2015: MON reached more than half of its potential profit and I exited for a profit, eliminating further time risk. The stock rose 1.2% over seven days, or a 62% annual rate. The options position produced a 106.0% yield on debit, for a +5,527% annual rate.

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The agro-tech company Monsanto Co. (MON), headquartered in Creve Coeur, Missouri, publishes earnings on Wednesday before the opening bell.

[MON in Wikipedia]

MON

I shall use the NOV series of options, which trades for the last time 45 days hence, on Nov. 20.

Implied volatility stands at 40.4%, which is 2.1 times the VIX, a measure of volatility of the S&P 500 index. MON ’s volatility stands in the 99th percentile of its annual range.

Iron condor, short the $95 calls and long the $100 calls,
short the $75 puts and long the $70 puts,
sold for a credit and expiring Nov. 21.
Probability of expiring out-of-the-money

NOV	Strike	OTM
Upper	95	79.9%
Lower	75	84.8%

The premium is $1.03, which is 21% of the width of the position’s wings. The stock at the time of purchase was priced at $88.05.

The risk/reward ratio is 4.1:1.

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 $6.46, and the average was $3.60.

Decision for My Account

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

-- Tim Bovee, Portland, Oregon, Oct. 6, 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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