The broadband and telecommunications company Verizon Communications Inc. (VZ), headquartered in New York City, publishes earnings on Thursday before the opening bell.
[VZ in Wikipedia]
I shall use the FEB series of options, which trades for the last time 30 days hence, on Feb. 20.
Implied volatility stands at 24%, which is 0.8 times the VIX, a measure of volatility of the S&P 500 index. VZ’s volatility stands in the 88th percentile of its most recent range.
|Week||SD1 68.2%||SD2 95%||Earns|
VZ has been in a down-tilted sideways move since April 2013.
Brokerages in aggregate come down at a 17% enthusiasm index for VZ, with 52% of 23 analysts giving a strong buy recommendation.
Three of the last four earnings announcements resulted in price increases the next trading session.
VZ has a beta of 0.31, meaning that it correlates weakly with the S&P 500.
In constructing a direction-neutral position, I'm skewing the profit zone to the downside to better accommodate a post-earnings decline.
short the $41 puts and long the $40 puts,
sold for a credit and expiring Feb. 21.
Probability of expiring out-of-the-money
The risk/reward ratio is 2.8:1.
The zone of profit in the proposed trade covers a $2.50 move either way. The biggest immediate move after each of the past four earnings announcements was $2.41, and the average was $1.14. The central tendency, after removing the maximum and minimum, was $0.80
Decision for My Account
I have opened a position on VZ after dropping my ask of $0.32 5o $0.27 in order to get a fill. I have updated the analysis above to reflect the new price.
-- Tim Bovee, Portland, Oregon, Jan. 20, 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.
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