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Re: [Options-for-Income] ISRG Iron Condor Earnings trade

From: Bob M.
Sent on: Tuesday, April 17, 2012 8:10 AM
Mike,

Good points all the way around. I stand corrected my numbers were off for 4thQ 10. Rechecking the January 2011 chart I came up with the same numbers you have.  Also the absolute move is what we're looking for so recording all as positive then color coding to distinguish positive/negative direction makes sense.

Bob

On 4/17/2012 7:22 AM, Mike wrote:
Bob,

I think I have the answer. The goal is to understand the potential size of a move, either up OR down.  If you take the average based on negative and positive we get the wrong results. For example if I average a -2 and a 2, the average is zero. What we are looking for is an answer of 2. So you have to record all of the moves as positive figures.  I suggest tracking both the absolute move by making all numbers positive and track the up and down move by color coding the result say green for a positive move and red for a negative move.

Lastly, there is something wrong with you numbers. For example for 4th q 10 reported in Jan 20th, the move was over 11% as ISRG closed at[masked] and opened the next morning at[masked]. You can easily see this huge gap on the daily charts.

Mike

On Tue, Apr 17, 2012 at 6:37 AM, Bob Miller <[address removed]> wrote:
Mike,

Thanks for the feedback.  I was wondering about the average earnings for it didn't look right to me.  Here's how I figured them using Jan 19, 2012 as an example. Earnings were after the close on the 19th, so I used the close of that day which was[masked]. The open the next day was[masked]. Subtracting[masked] from[masked] is -29.65. Then dividing -29.65/474.65 the result is -6.25%.  I used the same process for the past two years and calculated the average.

ISRG


Stk Move Earnings
1st Q 12   17-Apr
4th Q 11 -6.25% 19-Jan-12
3rd Q 11 9.11% 18-Oct-11
2nd Q 11 5.10% 19-Jul-11
1st Q 11 -2.32% 19-Apr-11
4th Q 10 -0.06% 20-Jan-11
3rd Q 10 -5.60% 19-Oct-10
2nd Q 10 -2.14% 21-Jul-10
1st Q 10 -1.58% 15-Apr-10
Average -0.47%  
Prior 7.97% 21-Jan-10

With regard to the adjustment, before actually entering the trade, I'd adjust the shorts I used in my original estimates to fit the current price.

Thanks,
Bob


On 4/17/2012 5:47 AM, Mike wrote:
Bob,

Good start here.  I am coming up with different results though for the earnings averages. You might want to double check that and make sure you are calculating from the close prior to earnings announcement and the open after.  Please remember that the dates you measure depend on whether the company reports before or after the close.  In other words two companies can report on the 17th, but one you would measure the close from the 16th to the open on the 17th and one you would measure the close on the 17th and the open on the 18th.  Also, I do not recommend getting in the trade the morning of and adjusting. I rather watch the action  within the last hour of trading and adjust the short strikes accordingly. This way, I just manage it before I enter instead of managing a live trade to fit the close.

Hope this makes sense

On Mon, Apr 16, 2012 at 11:39 AM, Bob Miller <[address removed]> wrote:
Here's an earnings trade to look at for ISRG:

Iron Condor
Apr12 +590 call
Apr12 - 600 call
Apr12 - 480 put
Apr12 +470 put    

These are the APR12 options which expire Friday. The regular monthly option is used because there are not weekly options on the week of expiration of the monthly.    The market maker move is  $5.45, the ATM straddle is 29.90 and the 2 yr earnings move average is -0.06%.  These strikes are about 50 from the current price of 537.  ISRG is expected to report earnings tomorrow, April 17 after the close (3.15).  If I were to put on this trade I'd put it on tomorrow morning making any adustments to allow for changes in ISRG's price action today.

There's currently a $1.50 credit and a 95% chance of it staying within the range of this Iron Condor.  This is profitable anywhere from [masked] to[masked], max gain $1.50  max risk,  $8.50 ($10 strike spread minus 1.50 credit).

Let's see how this works compared to last week's AAPL trade.

Bob M.




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