Tuesday, November 8, 2016

MYL Analysis

Update 11/18/2016: MYL reached  a level above half of its potential profit and I exited.

Shares declined by 1.7% over 10 days, or a -61% annual rate. The options position produced a 103.3% yield on debit for a +3,772% annual rate

The generics and specialty pharmaceutical house Mylan N.V. (MYL), with operational headquarters in Hatfield, Hertfordshire, U.K., publishes earnings on Wednesday after the closing bell.

[MYL in Wikipedia]


I shall use the DEC series of options, which trades for the last time 38 days hence, on Dec. 16.


Implied volatility stands at 51%, which is 2.9 times the VIX, a measure of volatility of the S&P 500 index. MYL’s volatility stands in the 68th percentile of its annual range. The price used for analysis was $37.62.

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

MYL has been in a sharp downtrend since April 2015. In Elliott wave terms, it is in the third wave down of what appears to be an impulse wave to the downside, although it could prove to be the beginning of a corrective wave.

Zacks Investment Research has given MYL a bearish rating with no indication that an upside earnings surprise is on the horizon.

Brokerages in aggregate come down with a 17% enthusiasm rating, with 58% of 12 analysts issuing strong buy recommendations.

Prices have fallen the trading session after each of the last four earnings announcements.

I shall structure the position as a bear trade.
Bear call spread, short the $40 calls and long the $42.50 calls,
sold for a credit and expiring Dec
. 17.
Probability of expiring out-of-the-money


The premium is $0.61, which is 24% of the width of the position’s wings.

The risk/reward ratio is 3:1.

The strike price is $2.47 above the entry price. The biggest immediate move after each of the past four earnings announcements was $9.12, and the average was $3.42. After eliminating the maximum and minimum post-earnings movements, the central tendency is $1.72.

Decision for My Account

I've entered a position on MYL as described above. The stock at the time of entry was priced at $37.53.

-- Tim Bovee, Portland, Oregon, Nov. 8, 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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