Thursday, January 14, 2016

C Analysis

Update 2/1/2016: C attained 51% of its potential proft and I exited.

Shares declined by 6.4% over 18 days, or a -130% annual rate. The options position produced a 105.4% yield on debi for a +2,137% annual rate.

The financial company Citigroup Inc. (C), headquartered in New York City, publishes earnings on Friday before the opening bell.

[C in Wikipedia]


I shall use the FEB series of options, which trades for the last time 36 days hence, on Feb. 20.


Implied volatility stands at 40%, which is 1.6 times the VIX, a measure of volatility of the S&P 500 index. C’s volatility stands in the 97th percentile of its most recent 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

C has been in a sharp downtrend since Nov. 6. Yet, in the past year the stock price has risen post-earnings three out of four times.

Brokerages collectively give C a 60% enthusiasm rating, and 73% of the 15 analysts covering the company are giving a strong-buy recommendation.

So its a mixed picture, and under such circumstances, the best response is the iron condor.

Iron condor, short the $47.50 calls and long the $50 calls,
short the $40 puts and long the $37.50 puts,
sold for a credit and expiring Feb. 21.
Probability of expiring out-of-the-money


The premium is $0.76, which is 30% of the width of the position’s wings. The stock at the time of analysis was priced at $44.85.

The risk/reward ratio is 2.2:1.

The zone of profit in the proposed trade covers a $3.25 move either way. The biggest immediate move after each of the past four earnings announcements was $2.25, and the average was $1.75. The central tendency, with the outliers removed, was $1.98.

Decision for My Account

I entered a position on C as described above. The stock price at entry was $45.11.

-- Tim Bovee, Portland, Oregon, Jan. 14, 2016


Tradecraft: Playing the odds to build winning stock market trades from options, a description of how I trade, can be read here.

Elliott wave analysis tracks patterns in price movements. StockCharts has a good explainer. The principal practioner of Elliott wave analysis is Robert Prechter at Elliott Wave International. His book, Elliott Wave Principle, is a must-read for people interested in this form of analysis, as is his most recent publication, Visual Guide to Elliott Wave Trading


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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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