Update 7/14/2021: I exited my bear call options spread position on SPCE two days before expiration, for a $0.99 debit per contract/share, a loss before fees of $29 per contract. Shares were trading at $36.10, down $7.81 from the entry level. The implied volatility rate at exit was 37.9%, down 8.1 points from the entry level.
My decision to exit was based on a drop in share prices that lowered the loss to an acceptable level. The loss was 23% of maximum potential loss.
The price peaked on June 28 at $57.51, more than $20 above $36 top of the profit zone on the position. It then declined rapidly, returning to the $36 level today, with only two more trading days left before expiration.
Shares rose by 27.6% over 43 days for a +234% annual rate. The options position produced a 29.3% loss for a -249% annual rate.
I have entered a short bear call spread on SPCE, using options that trade for the last time 45 days hence, on July 16. The premium is a $0.70 credit per contract share and the stock at the time of entry was priced at $28.29.
The implied volatility rank (IVR) stands at 46%.
|SPCE-bear call spread||Strike||Odds||Delta|
The premium is 28% of the width of the position’s wing.
The profit zone covers a 24.8% move to the upside with no limit to the downside.
The risk/reward ratio is 6.1:1, with maximum risk of $430 and maximum reward of $70 per contract.
Elliott wave analysis. By my count the peak of May 28 completes a 5th wave to the upside. (The subscripts in curly brackets after the wave numbers are relative to each other and don’t refer to the named Elliott wave degrees.) What follows is either a new downtrend or a correction within an ongoing uptrend. For my principle analysis I’ve treated the decline as a correction, counting the peak as a 5th wave within a larger 3rd wave, and the ensuing decline as an A wave within larger 4th wave.
In either case, the peak of 35.04 should stand unchallenged until the 4th wave has reached completion, allowing me to place my short strike price at 36, slightly above the peak. The price at entry is significantly below that level, creating a higher risk/reward ratio than I like, but with active management of the position I presume that I’ll be able to mitigate the risk.
By Tim Bovee, Portland, Oregon, June 1, 2021
Tim Bovee, Private Trader tracks the analysis and trades of a private trader for his own accounts. Nothing in this blog constitutes a recommendation to buy or sell stocks, options or any other financial instrument. The only purpose of this blog is to provide education and entertainment.
No trader is ever 100 percent successful in his or her trades. Trading in the stock and option markets is risky and uncertain. Each trader must make trading decisions for his or her own account, and take responsibility for the consequences.
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