Written by Andrew Keene | October 15, 2012

S&P Emini Pivot Points for 10.16.2012

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Written by Andrew Keene | October 15, 2012

Earnings Play of the Day KO 10.15.2012

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The increase in revenues and earnings is not due to higher sales, but to raises in prices and new cost cutting measures Coca Cola has put into place. KO has beat earnings estimates 5 of the last 5 quarters, and has beat or met revenue estimates 5 of the last 5 quarters. The stock has rallied on the last 4 earnings reports with an average upside move 1.9%

My trade:

Trade: Buy the KO 38.5-39.5 Call Spread for $0.14

Risk: $14 per 1 lot

Reward: $86 per 1 lot

Breakeven: $38.64

Notes: The stock has rallied 4 out the last 4 earnings reports, and this trade has a great risk vs reward setup.

Written by Andrew Keene | October 15, 2012

Unusual Option Activity 10.15.2012

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Paper bought 5,000 KRE Jan 38 Puts for $1.23 (4.0 times usual volume) when stock was trading $28.25

Paper bought 1133 CYS Dec 13 Calls for $.45 (10.3 times usual volume) when stock was trading $12.73

Paper bought 3382 TRV Oct 70 Calls for $.425 (7.4 times usual volume) when stock was trading $68.87

Written by Andrew Keene | October 15, 2012

First Business Interview 10.15.2012

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Written by Andrew Keene | October 15, 2012

Pregame IBM Earnings From Every Angle (IBM, QQQ) 10.15.2012

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Now to what is implied for the coming event, because the IBM October options only have this week to trade, they will be an organic way to derive what is implied for the event on the 16th after the close. Using an implied volatility & time based model, we calculated the one-sigma move (68% probability within) to be roughly $8.74 up or down and the two sigma move (95% probability within) about $17.47 either way. On Friday, October 12th 2012, the stock had a 1% pop while the market was slightly down. The implied volatility curve (IV being a measure of risk, supply and demand, relative price, and an input into theoretical models) is displayed below, for it is important to know, especially if one is trading two different months in a spread.

The following chart includes the one and two sigma rolling probability cone and a volume profile. The upward channel from mid July to now has been solid support and resistance. Additionally, we are currently sitting at the point of control on the upper distribution. Massive support will sit, specifically on this expiration Friday (red vertical line), at $202.25. The 150 day moving average will sit around there along with the volume profile’s value area high, and this level is at the lower end of the one sigma move (68% probability within).

The ATM (at the money) front month $210 straddle (lifting the offer) is at about $7.36. Using a theoretical model, and adjusting time and implied volatility, in order to break even IBM must move up $9.34 (4.5%) or down $4.32(-2%) the next morning to offset the IV crush and time decay. We estimated front month IV to be 28.4%, for that was the average IV post earnings over the last six observations. It is interesting to note that as of the close on Friday, 10/13/12, front month IV was relatively cheap historically speaking, see excel sheet for data…average of 51.37% pre earnings IV while the current IV is at 38%.