Shares declined by 7.0% over 37 days, or a +69% annual rate. The options position produced a +185.71% yield on debit for a +1,832% annual rate.
The natural gas and oil company Range Resources Corp. (RRC), headquartered in Forth Worth, Texas, publishes earnings on Wednesday after the closing bell.
[RRC 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 73%, which is 4.9 times the VIX, a measure of volatility of the S&P 500 index. RRC’s volatility stands in the 97th percentile of its annual range.
|Week||SD1 68.2%||SD2 95%||Earns|
Analysts hold a strong opinion that RRC will produce a negative earnings surprise. I shall structure the position as a bear vertical spread.
sold for a credit and expiring Dec. 19.
Probability of expiring out-of-the-money
The premium is $0.80, which is 32% of the width of the position’s wing. The stock at the time of analysis was priced at $28.73.
The risk/reward ratio is 2.1:1.
The strike is $1.04 above the market price. The biggest immediate move after each of the past four earnings announcements was $2.67, and the average was $1.24.
Decision for My Account
I've opened a position on RRC 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.
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