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Ok so I went through FDX data and looked at 20 day returns after the stock had a 5% gain. Here’s the distribution afterwards:
Now most of the results are clustered between -6% and 10%.
Those few outliers are in the middle of a market crash in 2008-2009 and aren’t necessarily applicable to what we’re looking at here.
Since 2009, the maximum 20 day return is a little over 8%.
So with this calendar trade we look to add to the trade as the underlying squeezes higher. The biggest risk would be if the stock goes higher and doesn’t stop.
If we assume max move in 20 days is about 10%, that would mean 17 points of upside… all the way up to 192.
Now if you were to put on the 180, 185, and 190 calendar on all at once right now, your opex breakeven would be 187… still 5 points of risk to the upside, but it’s still mnageable. And that doesn’t include any downside variance we would have as well as changes in term structure.
I don’t think we’ll have a 10% upside in 20 days because of the market cap of the stock and how close we are to all time highs. I’m just providing the “stretch” scenario.
If I wanted to massage the data a little more, I could take a look at only earnings gaps higher when the market isn’t a huge factor (correlations run higher during a crash). It would tighten up the expected variance even further.