Tuesday, October 6, 2015

YUM Analysis

Update 11/18/2015: I completed my exit of YUM with a few days left before expiration.

For the position overall, shares decliend by 15.2% over 39 days, or a -144% annual rate. The options position produced a 19.7% loss on debit for a -187% annual rate.

Update 11/9/2015: YUM gapped sharply to the downside after earnings were released, placing the price below the lower bound of my iron condor profit zone. I exited the puts, changing the position into a bear call spread that I expect will expire for maximum profit. I shall defer calculation of results until the entire position has unwound.

The restaurant chain operator YUM! Brands Inc. (YUM), headquartered in Louisville, Kentucky, publishes earnings on Tuesday after the closing bell.

[YUM in Wikipedia]


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

Implied volatility stands at 40.1%, which is double the VIX, a measure of volatility of the S&P 500 index. YUM’s volatility stands in the 72nd percentile of its annual range.

Iron condor, short the $90 calls and long the $95 calls,
short the $70 puts and long the $65 puts,
sold for a credit and expiring Nov. 21.
Probability of expiring out-of-the-money


The premium is $1.06, which is 21% of the width of the position’s wings. The stock at the time of purchase was priced at $82.71.

The risk/reward ratio is 3.7:1.

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 $3.19, and the average was $2.22.

Decision for My Account

I've opened a position in YUM as described above.

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