VIAB Analysis

The entertainment company Viacom Inc. (VIAB), headquartered in New York City, publishes earnings on Tuesday before the opening bell.

[VIAB in Wikipedia]

VIAB

I shall use the MAR series of options, which trades for the last time 39 days hence, on March 18.

Ranges

Implied volatility stands at 65%, which is 2.5 times the VIX, a measure of volatility of the S&P 500 index. VIAB’s volatility stands at the top of its most recent range.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	50.38	59.27	48.81
Lower	32.62	23.73	34.19
Gain/loss	±$8.88	±$17.77	±$7.31

Implied volatility 1 and 2 standard deviations; maximum earns move
The price used for analysis was $41.50.

The Trade

VIAB peaked in July 2014. The subsequent slide carried the price down to a low on Aug. 24, 2015, the day of the China Panic. The price has since been zig-zagging well below the peak in a net sideways trend.

Two out of the last four earnings announcement have resulted in price increases the next trading session.

Brokerages in aggregate come down with a negative 10% enthusiasm index, with 45% of 20 analysts issuing strong-buy recommendations.

I a direction neutral play as  being the best tactic for trading VIAB.

Iron condor, short the $47.50 calls and long the $50 calls,
short the $35 puts and long the $32.50 puts,
sold for a credit and expiring March 19.
Probability of expiring out-of-the-money

MAR	Strike	OTM
Upper	47.5	80.0%
Lower	35	75.7%

The premium is $0.70, which is 28% of the width of the position’s wings.

The risk/reward ratio is 2.6:1.

The zone of profit in the proposed trade covers a $6.25 move either way. The biggest immediate move after each of the past four earnings announcements was $7.31, and the average was $2.88. After eliminating the maximum and minimum post-earnings movements, the core tendency is $1.89.

Decision for My Account

The options grid doesn't allow coverage of the maximum immediate post-earnings move over the past year. For that reason, I'm rejecting the trade.

-- Tim Bovee, Portland, Oregon, Feb. 8, 2016

References

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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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



All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.

Based on a work at www.timbovee.com.