NTAP Analysis

The data management and storage company NetApp Inc. (NTAP), headquartered in Sunnyvale, California, publishes earnings on Wednesday after the closing bell.

[NTAP in Wikipedia]

NTAP

I shall use the DEC series of options, which trades for the last time 30 days hence, on Dec. 16.

Ranges

Implied volatility stands at 46%, which is 3.3 times the VIX, a measure of volatility of the S&P 500 index. NTAP’s volatility stands in the 57TH percentile of its annual range. The price used for analysis was $34.71.

Ranges implied by options and earnings

Week	SD1 68.2%	SD2 95%	Earns
Upper	39.25	43.80	35.21
Lower	30.17	25.62	34.21
Gain/loss	±$4.54	±$9.09	±$0.50

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

NTAP has been in a shallow decline since 2011. The price most recently executed an upward move that peaked on Sept. 22, took a step down and since Nov. 4 has recovered back to the upside, although it remains below the peak.

Zacks Investment Research is neutral about NTAP's prospects.

Brokerages give NTAP negative 76% enthusiasm rating -- it deserves to be called "loathing rating" at that level -- with 12% of 25 analysts issuing strong by recommendations.

NTAP's price has risen immediately after two of the last four earnings announcements.

Given the chart, I don't feel confident enough to do a directional trade, so I'll use an iron condor construction, which is direction neutral.

Iron condor, short the $38 calls and long the $39 calls,
short the $30 puts and long the $29 puts,
sold for a credit and expiring Dec. 17.
Probability of expiring out-of-the-money

DEC	Strike	OTM
Upper	38	79.9%
Lower	30	82.5%

The premium is $0.29, which is 29% of the width of the position’s wings.

The risk/reward ratio is 2.5:1.

The zone of profit in the proposed trade covers a $4 move either way. The biggest immediate move after each of the past four earnings announcements was $5.03, and the average was $1.53. After eliminating the maximum and minimum post-earnings movements, the central tendency is $0.50.

Decision for My Account

I' placed an order on NTAP as described above but was unable to get a fill at my asking price. The stock at the time of the order was priced at $34.56.

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