CTRP Analysis

Update 3/28/2015: I exited CTRP for a profit. The exit took place at 33% of maximum profit, lower than I like. However, the chart looked as though it were deteriorating contrary to my interests and so I skedaddled early.

Shares rose by 4.9% over 12 days, or a +149% annual rate. The options position produced a 50.0% yield on debit for a +1,521% annual rate.

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The travel service company Ctrip.com International Ltd. (CTRP), headquartered in Shanghai, China, publishes earnings on Wednesday after the closing bell.

[CTRP in Wikipedia]

CTRP

I shall use the APR series of options, which trades for the last time 30 days hence, on April 17.

Ranges

Implied volatility stands at 62%, which is 3.8 times the VIX, a measure of volatility of the S&P 500 index. CTRP’s volatility stands in the 64th percentile of its most recent range. The price used for analysis was $40.96.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	44.24	55.53	47.52
Lower	33.79	26.39	34.41
Gain/loss	±$7.28	±$14.57	±$6.56

Implied volatility 1 and 2 standard deviations; central tendency earns move
The Trade

CTRP has been in a downtrend since Nov. 20, 2015 and, over a shorter term, has been trending sideways since mid-February.

Prices have closed higher in the next trading session after all of the past four earnings announcements.

Brokers collectively give CTRP an 80% enthusiasm rating, and eight out of 10 analysts following the stock are making strong buy recommendations.

Iron condor, short the $47 calls and long the $48 calls,
short the $33 puts and long the $32 puts,
sold for a credit and expiring April 18.
Probability of expiring out-of-the-money

APR	Strike	OTM
Upper	47	82.2%
Lower	33	84.1%

The premium is $0.27, which is 27% of the width of the position’s wings. The share price at time of entry was $41.39.

The risk/reward ratio is 2.7:1.

The zone of profit in the proposed trade covers a $7 move either way. The biggest immediate move after each of the past four earnings announcements was $9.54, and the average was $6.69. After eliminating the maximum and minimum post-earnings movements, the core tendency is $6.56.

Decision for My Account

I've entered a position  on CTRP as described above. I was able to construct the spread in a way that allowed coverage of the average and central tendency movements post-earnings, although the zone of profit falls short of covering the maximum range occurring in March 2015.

-- Tim Bovee, Portland, Oregon, March 16, 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.