Monday, November 23, 2015

TIF Analysis

Update 12/3/2015: TIF reached 52% of its maximum profit and I exited to avoid further risk. 

Shares declined by 1.1% over 10 days, or a -40% annual rate. The options position produced a 106.3% yield on debit for a +3,878% annual rate.

The jewelry retailer Tiffany & Co. (TIF), headquartered in New York City, publishes earnings on Tuesday before the opening bell.

[TIF in Wikipedia]


I shall use the JAN series of options, which trades for the last time 53 days hence, on Jan. 16.


Implied volatility stands at 40%, which is 2.9 times the VIX, a measure of volatility of the S&P 500 index. TIF’s volatility stands in the 79th percentile of its annual range.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; maximum earns move

The Trade

TIF has been in a downtrend for the past year.

No surprise, then, that Zacks Investment Research gives TIF a bearish rank of 4 and forecasts a -4.1% negative earnings surprise. Zacks has concluded that its earnings surprise prediction system is no better than a random result would be when it comes to negative surprises, although it has a 70% accuracy rate for positive surprises.

Analysts are square in the middle on TIF, with an enthusiasm rating of zero and half of those following giving a Strong Buy recommendation.

TIF's earnings announcements have resulted in a next-day price rise three times out of four during the past year.

I shall attempt to structure a bearish position with as much protection to the upside as I can provide.

Bear call spread, short the $82.50 calls and long the $85 calls,
sold for a credit and expiring Jan. 17.
Probability of expiring out-of-the-money


The premium is $0.66, which is 26% of the width of the position’s wings. The stock at the time of entry was priced at $77.11.

The risk/reward ratio is 2.8:1.

The short strike provides a profit zone $5.39 above the market price.  The biggest immediate move after each of the past four earnings announcements was $9.01, and the average was $4.55. The proposed position provides full coverage of the average post-earnings move.

Decision for My Account

I've entered a position on TIF as described above.

-- Tim Bovee, Portland, Oregon, Nov. 23, 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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