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Earning Play - Stitch Fix (SFIX)

Summary

Options Implied Volatility (IV) is elevated heading into SFIX earning after the market close on 03/11/2019.

I would like to take advantage of the elevated IV to generate income by selling 10 delta strangle heading into earning.

Volatility crash often occurs after the earning release and may provide the opportunity to close the position before expiration, and thereby freeing the capital used.

The options implied volatility for SFIX is elevated heading into earning after the market close on 03/11/2019.  The options market is predicting roughly +/- 4.8 points move into earning, which is roughly around 18% based on the current price ($26.75).  

I decided to sell strangle heading into earning as follows:  

  • Sold SFIX 15 MAR 17.5 Put for $0.23 per contract
  • Sold SFIX 15 MAR 35 Call for $0.26 per contract
  • Total premium received was $0.49 per contract
  • Margin required is $837.5 per contract
  • Percentage expected return is 5.85% in 11 days or ~ 190% annualized

Volatility crash tends to occur after the earning is released, and would potentially provide the opportunity to close the trade early.  This will free up capital, albeit giving us return that is less than the maximum expected return.   

Disclosure: I am/we are short SFIX (strangle).

Additional disclosure: I/we have strangle positions in SFIX heading into earning after the market close on 03/11/2019. I wrote this article myself, and it expresses my own opinions. It is for informational purposes only and is not intended to be used as a complete source of information to initiate any Options selling strategy.