Monday, April 11, 2016

FAST Analysis

Update 4/12/2015: I exited FAST for 54% of potential profit upon a sharp drop in the share price immediately after the earnings announcement.

Shares declined by 3.9% over one day, or a -1,422% annual rate. The options position produced a 118.8% yield on debit for a +43,344% annual rate.

The industrial and construction supplies company Fastenal Co. (FAST), headquartered in Winona, Minnesota, publishes earnings on Tuesday before the opening bell.

[FAST in Wikipedia]


I shall use the MAY series of options, which trades for the last time 39 days hence, on May 20.


Implied volatility stands at 34%, which is 2.2 times the VIX, a measure of volatility of the S&P 500 index. FAST’s volatility stands in the 62nd percentile of its most recent range. The price used for analysis was $47.56.

Ranges implied by options and earnings
WeekSD1 68.2%SD2 95%Earns
Implied volatility 1 and 2 standard deviations; central tendency earns move

A book from my library →

The Trade

FAST began its present rise in January and rose steadily until March 21. The subsequent decline reversed near the 23.6% Fibonacci retracement level. The bounce stands well below the March peak.

The form of the movement is consistent with an ongoing correction within an uptrend, or with the very early stages of a downtrend. Since the present large trend to the upside began in at least 1998 and peaked in 2012, I'm inclined to the chart as showing a longer-term bear trend and the rise ending in March as an upward correction within that bear trend.

Brokerages in aggregate give FAST  a negative 71% enthusiasm rating, quite a low level, with two out of 14 analysts issuing strong buy recommendations.

FAST has closed higher only once in the past year on the first trading day after earnings were published.

Given the largely bearish nature of the evidence, I shall construct a directional trade in the form of a vertical spread.
Bear call spread, short the $48 calls and long the $50 calls,
sold for a credit and expiring May 21.
Probability of expiring out-of-the-money

The premium is $0.70, which is 36% of the width of the position’s wings. The share price at time of entry was $47.47.

The risk/reward ratio is 1.8:1.

The zone of profit in the proposed trade covers a $0.60 move to the upside and any distance to the downside. The biggest immediate move after each of the past four earnings announcements was $3.01, and the average was $1.81. After eliminating the maximum and minimum post-earnings movements, the core tendency is $1.65.

Decision for My Account

I've opened a position on FAST as described above.

-- Tim Bovee, Portland, Oregon, April 11, 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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