$YUM Earnings Trade

Yum! Brands Inc. (YUM $66.50, off $0.44) develops, operates, and franchises restaurants like KFC, Pizza Hut, and Taco Bell. Analysts are bullish, majority expecting YUM to outperform the market, but the stock looks as if it is consolidating in the short-term as the 150 and 200 day moving averages have caught up to the spot price.

The average move after earnings is 2.0%, the majority being a negative movement. The ATM straddle expected move is 5% I want to sell the movement as I think the stock is range-bound and that worked well on YUM Earnings last quarter.

H: Historical Movement

07/19/12 $65.55 $65.86 $+0.31 (0.5%)

04/19/12 $72.94 $71.41 $-1.53 (-2.1%)

02/07/12 $63.19 $64.85 $+1.66 (2.6%)

10/05/11 $49.44 $48.12  $-1.32 (-2.7%)

Average Magnitude of Post Earnings Return 2.0%

I: Implied Movement: 5%

M: Measured Move Target: the 65 Put, 67.5 Call Strangle is $2.25

Downside: 65 minus $2.25= $62.75

Upside: 67.5 plus 2.25= $69.75

C: Chart is sloppy and seems as if it stuck between $65-$69

My trade:

Selling a condor. This means selling the 65 – 62.5 Bull Put Spread (sell the 65 put and buy the 62.50 put) and selling the 70-72.5 call spread for a $0.88 credit.

Risk: $162 per one lot

Potential Reward: $88 per one lot

T: Time: October

T: Target: Stock stays between $65 and $70.

My breakeven: $84.12 and $70.88 (excludes transaction costs)

Regards,

Andrew Keene

andrew@keeneonthemarket.com

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