Bird Flu Spreading to the Option Vols Near You in YUM

The market has thoroughly shaken off the jobs report from Friday.  While I watched for some headline news today, there did not seem like a lot out to cause us to rally and press the VIX down to 13.19.  Mostly a lack of bad news, and we rallied.  A failed merger in Greece of some big banks, and the TLT actually fell off by a good clip today.  I guess we have two days of bizarro action (see Friday’s blog).

For a little interesting action keep an eye on YUM.   Now YUM has a serious presence in China and the latest Bird Flu tragedy could impact the company as customers stay away from chicken in the short term. Looking at the volatility action the April contract is catching a little bid.  Note how the April options caught a bid today on the potential adverse effects of the Bird Flu. Note how the April volatility is coming up to the May.

 

 OptionVision

As of right now, I have the May cycle holding the earnings cycle with a potential earnings date of April 23rd.  The set up would be to buy the May and sell the April earnings with a gentle fade of the current news coming out of China.   With two weeks left to April expiration these time spreads make the Mays look a bit cheaper.  I like time spreads where there is news pushing up the near term and the fact traders can own the expiration cycle too boot is a nice plus.

The Trade

First try to confirm the earnings date. If it is how I think buying the YUM Apr/ May strangle swaps should work well when/if the Apr IV collapses.

If you want to learn what all this means-  This is the type of information we will train you to analyze in our gold course.  If you needed help following this trade, you should be in that course.  Call us at 888 Trade 01 and ask for Taylor or Joel.

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