NaughtyPines

YHOO -- PROBABLY NOT WORTH PLAYING VIA IC/SHORT STRANGLE

NASDAQ:YHOO   None
With YHOO announcing earnings on 10/20 after market close (and with little volatility in the broader market to take advantage of from a premium selling standpoint), I looked at possible plays ... .

After fees and commissions are considered, it is unlikely that I will play Yahoo. A typical 70% probability of profit Iron Condor setup with the Oct 23rd expiry yields less than .50 per contract, a short strangle less that .75. If I look to take either off at 50% max profit, I'll be looking at a max profit of .25 per contract with the iron condor and maybe .50 with the short strangle after fees and commissions. Not stellar ... .

Just for kicks, though, I also considered a short straddle, a setup where the short call strike and the short put strike are at current price. This yields a greater premium (1.90/contract for Oct 23rd expiry), but has a lower probability of profit (50%), and would require price to remain rangebound between 31.60 and 35.40, which is not something I would count on here. Naturally, I would not be looking for max profit out of such a setup (the rule of thumb is to cover these at 25% max, take the money, and run), but in that case I'd be looking to cover for something short of .50/contract, which is not that much better than were I to go with a short strangle, which has a higher probability of success.
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