Tuesday, November 1, 2016

GILD Analysis

11/17/2016: GILD retraced much of its post-earnings spike to the upside, moving back into profitable territory. I exited for a profit.

Shares rose by 2.5% over 16 days, or a +57% annual rate. The options position produced a 114.3% yield on debit for an annual rate of +2,607%.

The pharmaceutical research company Gilead Sciences Inc. (GILD), headquartered in Foster City, California, publishes earnings on Tuesday after the closing bell.

[GILD in Wikipedia]


I shall use the DEC series of options, which trades for the last time 45 days hence, on Dec. 16.


Implied volatility stands at 37%, which is 2.1 times the VIX, a measure of volatility of the S&P 500 index. GILD’s volatility stands in the 67th percentile of its annual range. The price used for analysis was $73.77.

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

The Trade

GILD has been in a downtrend since the peak of July 2015 ended a five-year-long rise. The downtrend continues steadily today, punctuated by the occasional counter-movement to the upside that, characteristically of the zig-zag pattern, falls short of the prior high.

The Bible of Options Strategies
by Guy Cohen

Zacks Investment Research gives GILD a bearish rating and yet, paradoxically, sees changes in analysts' assessments that points to a slight chance of an upside earnings surprise.

And brokerages are positive, collectively coming down with a 5% enthusiasm rating and with half of 20 analysts issuing strong buy recommendations

GILD has risen once in price immediately after one of the last four earnings announcements.

If I were pressed for a visualization of this assessment, I would call it a diamond in the mud. Although I'm not sure whether I'm seeing a diamond or a piece of broken glass. I'll settle on a direction neutral strategy for this paradoxical trade.

Iron condor, short the $80 calls and long the $82.50 calls,
short the $67.50 puts and long the $65 puts,
sold for a credit and expiring Dec. 17.
Probability of expiring out-of-the-money


The premium is $0.90, which is 3% of the width of the position’s wings.

The risk/reward ratio is 1.8:1.

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 $8.79, and the average was $5.70. After eliminating the maximum and minimum post-earnings movements, the central tendency is $5.59.

Decision for My Account

I have opened a position on GILD as described above and shall update with the fill. The stock at the time of entry was priced at $73.20.

-- Tim Bovee, Portland, Oregon, Nov. 1, 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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Based on a work at www.timbovee.com.

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