Overall, shares rose by 8.3# over 54 days, or a +56% annual rate. The options position produced a 40.5% loss on debit for a -274% annual rate.
Update 3/15/2016: I exited the call portion of the iron condor for a $1.26 debit. The remaining bull put spread will expire without value at the end of the week, and I shall calculate the position's loss then.
The packaged products company, Procter & Gamble Corp. (PG), headquartered in Cincinnati, Ohio and producing lines of beauty, grooming, fabric care and other household products, publishes earnings on Tuesday before the opening bell.
[PG in Wikipedia]
I shall use the MAR series of options, which trades for the last time 53 days hence, on March 18.
Implied volatility stands at 25%, which is 1.1 times the VIX, a measure of volatility of the S&P 500 index. PG’s volatility stands in the 86th percentile of its most recent range.
|Week||SD1 68.2%||SD2 95%||Earns|
PG completed an 8-month downtrend on Aug. 24, 2015, bouncing to the upside for a significant retracement of the loss that peaked on Dec. 16, 2015. The price has since declined a bit but remains well above the December low.
The analytical trend -- the change over time in analyst opinion -- suggests the possibility of a negative earnings surprise. Analysts in aggregate give PG a negative 35% enthusiasm index, with 30% of 20 analysts covering the stock making a strong buy recommendation.
Two of the last four earnings announcement have been followed by a price rise the next trading session.
short the $70 puts and long the $67.50 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money
The risk/reward ratio is 2.3:1.
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 $2.36, and the average was $1.90. After eliminating the maximum and minimum post-earnings movements, the core tendency is $2.19.
Decision for My Account
I have opened a position on PG as described above.
-- Tim Bovee, Portland, Oregon, Jan. 25, 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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