STX Analysis

The data-storage hardware maker Seagate Technology PLC (STX), with operations headquartered in Cupertino, California publishes earnings on Friday before the opening bell.

[STX in Wikipedia]

STX

I shall use the DEC series of options, which trades for the last time 50 days hence, on Dec. 18.

Ranges

Implied volatility stands at 47%, which is triple the VIX, a measure of volatility of the S&P 500 index. STX’s volatility stands in the 81st percentile of its annual range.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	44.86	51.33	43.31
Lower	31.92	25.45	33.47
Gain/loss	16.9%	33.7%

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

Absent directional indicators, I shall construct a non-directional trade.

Iron condor, short the $42 calls and long the $43 calls,
short the $31 puts and long the $30 puts,
sold for a credit and expiring Dec. 19.
Probability of expiring out-of-the-money

DEC	Strike	OTM
Upper	42	80.7%
Lower	31	83.7%

The premium is $0.27, which is 27% of the width of the position’s wings. The stock at the time of analysis was priced at $37.83.

The risk/reward ratio is 2.7:1.

The zone of profit in the proposed trade covers a $5.50 move either way. The biggest immediate move after each of the past four earnings announcements was $4.92, and the average was $2.13.

Decision for My Account

I'm fully committed, and so I'm passing on the trade due to lack of tradable funds. If I had uncommitted funds, I would take the trade.

-- Tim Bovee, Portland, Oregon, Oct. 29, 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.

License



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.