SWKS Analysis

Update 11/15/2015: SWKS reached more than half of its potential profit and I exited to avoid further time risk. 

Shares rose by 8.8% over one day, or a +3,215% annual rate. The options position produced a +163.2% yield on debit, for a +59,553% annual rate.

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The semiconductor company Skyworks Solutions Inc. (SWKS), headquartered in Woburn, Massachusetts, publishes earnings on Thursday after the closing bell.

[SWKS in Wikipedia]

SWKS

I shall use the DEC series of options, which trades for the last time 43 days hence, on Dec. 18.

Ranges

Implied volatility stands at 54%, which is 3.4 times the VIX, a measure of volatility of the S&P 500 index. SWKS’s volatility stands in the 54th percentile of its annual range.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	93.57	106.20	84.99
Lower	64.31	49.68	72.89
Gain/loss	18.5%	37.1%

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

Analysts on balance anticipate a positive earnings surprise, and I shall construct a bull play.

Bull put spread, short the $75 puts and long the $70 puts,
sold for a credit and expiring Dec. 19.
Probability of expiring out-of-the-money

DEC	Strike	OTM
	75	58.3%

The premium is $1.50, which is 30% of the width of the position’s wing. The stock at the time of entry was priced at $79.01.

The risk/reward ratio is 2.3:1.

The short strike is $4.01 below the market price. The biggest immediate move after each of the past four earnings announcements was $6.05, and the average was $3.81.

Decision for My Account

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

-- Tim Bovee, Portland, Oregon, Nov. 4, 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



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Based on a work at www.timbovee.com.