Volatility Trading Digest - Quarterly Earnings Reports
Volatility Trading Digest - Quarterly Earnings Reports
Quarterly Earnings Reports
Here is a new entry into the quarterly report category, although it was also our Best Calendar Spread selection Friday as well as second on the high IV/HV ratio list.
Gilead Sciences Inc. (GILD)
Gilead Sciences, Inc. is a biopharmaceutical company developing and marketing drugs to treat patients with infectious diseases, including viral infections, fungal infections and bacterial infections, with a specialized focus on cancer. Scheduled to report 1Q earnings on April 26 after the close, the consensus estimate is .93 per share. Here is the pertinent options data.
The current Historical Volatility is 19.09 and 20.11 using the Parkinson's range method, with an Implied Volatility Index Mean of 52.80 up from 46.71 last week. The IV/HV ratio is 2.77 and 2.63 using the range method to calculate the HV. Friday's put-call ratio was a bearish 1.50 while the volume was 44,244 contracts traded compared to the 5-day average volume of 22,670 contracts.
Since the bid/ask spread are wide we do not suggest the calendar spread and offer this alternative idea.
Since the April options expire Friday there is considerable time decay over the weekend, estimated at .25 making the Monday range .34 bid -.81 ask. We suggest using a .75 limit order and wait. In the event the market opens down, especially below the important pivot at 1358.98 mentioned above in the strategy section we suggest suspending this idea.
Green Mountain Coffee Roasters Inc. (GMCR)
This implied volatility for this coffee company, scheduled to report 2Q earnings on May 3 after the close with a .64 consensus estimate, has been rising and we think it will continue rising as the earnings date approaches.
The current Historical Volatility is 65.19 and 43.85 using the Parkinson's range method, with an Implied Volatility Index Mean of 80.07 up from 72.03 last week. The IV/HV ratio is 1.23 and 1.83 using the range method to calculate the HV. Friday's put-call ratio was just bearish at .72 while the volume was 12,649 contracts traded compared to the 5-day average volume of 22,790 contracts.
Accordingly, here is another straddle trade plan to consider
After confirming the earnings report date, plan to close the position on May 2 as implied volatility should continue rising.
Takeover File
The result of a rumor, here is a new entry for the takeover file.
Safeway Inc. (SWY)
The company operates supermarkets including Vons, Dominick's, and Randalls throughout the Western, Southwestern, Rocky Mountain, Midwestern and Mid-Atlantic regions of the United States and western Canada.
The current Historical Volatility is 29.32 and 25.48 using the Parkinson's range method, with an Implied Volatility Index Mean of 41.68 up from 27.94 last week. The IV/HV ratio is 1.42 and 1.64 using the range method to calculate the HV. Friday's put-call ratio was extremely bullish at .20 while the volume was 27,887 contracts traded compared to the 5-day average volume of 13, 770 contracts.
While keeping an eye on the important pivot at 1358.98 mentioned above in the strategy section consider this long call spread short put combination.
Considering the time decay over the weekend the April 22 put should be around 1.05 Monday reducing the expected credit to .60. Use a close back below 20 as the SU (stop/unwind).
The suggestions above, except for Gilead and KB Home are based upon last Friday's closing prices using the mid price between the bid and ask. On Monday, the option prices will be somewhat different due to the time decay over the weekend and any price change.
Summary
From a technical perspective, the equity markets are showing signs of developing top patterns with the potential for an additional 5% correction although our VIX futures premium indicator has declined and seems to suggest less concern.
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From a technical perspective, the equity markets are showing signs of developing top patterns with the potential for an additional 5% correction although our VIX futures premium indicator has declined and seems to suggest less concern.
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