This is an update to the blog posted yesterday Avon Products (AVP) - Earnings Preview and Trade.
AVP is trading $31.00 with IV30™ down 19.1% after earnings. The LIVEVOL™ Pro Summary is below.
In yesterday's article I noted that:
AVP has followed a consistent pattern for six out of the last seven earnings starting with the 10-30-2008 cycle and ending with the last earnings cycle on 4-30-2010. Specifically, a straddle sale at the close on the day of earnings and a purchase back the day after was a winner six times and breakeven once.
AVP had earnings last night, the Options Tab today (after earnings) is included (click to enlarge).
We can see the ATM straddle is now worth $1.95 (we can probably buy it back for $2.00). Yesterday, the straddle was worth $2.20. The one day trade would have turned a 9% profit ex-commissions. The return is not quite what we hoped, but it's a win nonetheless. If you bought the strangle to protect, you can sell out the calls at$0.15 (or $0.10) and take only a $0.05 (or $0.10) loss on that protection (puts are $0.00 bid), so your gain is cut a little bit for the hedge. The updated earnings and dividends stats are included (click to enlarge).
This is trade analysis, not a recommendation.
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Straddle values on the Livevol chart are EOD, and on 2/4/10 EOD the straddle was worth 1.88, however time and sales do not support that number, and TOS thinkback function can not find the atm straddle at that price.
ReplyDeleteChecked because on that particular day the move in the underlying was -7.5%. Enough to have overcome the vol drop? Should be a loss no?
Might be looking at different straddles?
ReplyDeleteHeres what I have
ReplyDelete2/3/10 EOD Strad value --> 3/4/10 EOD Stad value
@31, 2.79 --> 1.78 36%
@32, 2.43 --> 2.25 7%
@33, 2.40 --> 2.98 -24%
The underlying price was 32.6
This was recreate using thinkback, I am not sure myself what is going.
My theory is perhaps livevol charts do not keep the same strike constant as it tracks the atm straddle, because the atm strike changes day to day......???
The straddle on that tab is chosen as of 5 trading days before earnings. So, it's a little different than what I am doing.
ReplyDelete