Morgan Stanley (MS)

Update 2/18/2022: This update describes the exit of the call portion of an iron condor. I shall first give results for the calls — a bear call vertical spread — and then combine those results with those from the puts for results from the entire iron condor.

I exited the bear call vertical spread on MS on the last trading day before expiration, for a $0.12 debit per contract/share, a profit before fees of $91 per contract. Shares were trading at $94.25, down $0.51 from the entry level.

The Implied Volatility Rank at exit was 61.2%, up 8.3 points from the entry level.

I exited because the vertical spread was within 75 cents of becoming in-the-money. A move during the day to $95 or or higher would have risked assignment along with the associated fees.

Shares declined by 0.5% over 31 days for a -6% annual rate. The options in the vertical spread produced a 758.2% return for a 8,929% annual rate.

Turning now to the iron condor position, combining the put vertical and the call vertical.

I exited my short iron condor position on MS 31 days before expiration, for a $4.02 debit per contract/share, a loss before fees of $214 per contract. Shares were trading at $94.25, down $0.51 from the entry level.

The Implied Volatility Rank at exit was 61.2%, up 8.3 points from the entry level.

I exited for the reasons described above for the calls and in the 2/11/2022 update, below, for the puts.

Shares declined by 0.5% over 31 days for a -6% annual rate. The iron condor options position produced a -53.2% return for a -627% annual rate.

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Update 2/11/2022: This update describes the exit of the put portion of an iron condor, which is made up of two vertical position built from calls and the other from puts. I shall post another update when the put position ends, most likely expiring without value, meaning I get to keep the whole $103 credit I received upon entry. That update will describe the exit both of the put position and, putting the put and call verticals back together, the exit of the original iron condor.

The stock underlying my short iron condor position on MS soared above the zone of profitability. In order to avoid exercise, I have exited the short call vertical spread that defines the upper boundary, seven days before expiration, at the cost of a $3.90 credit per contract/share, a loss before fees of $305 per contract. Shares were trading at $105.70, up $10.94 from the entry level.

The Implied Volatility Rank at exit was 35.5%, down 17.4 points from the entry level.

After the price soared, the cost of exiting was greater than my maximum risk. Today for the first time the cost moved below maximum risk, and so I exited.

Shares rose by 11.5% over 24 days for a +176% annual rate. The options position produced a 78.2% loss for a -1,189% annual rate.

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I have entered a short iron condor spread on MS, using options that trade for the last time 31 days hence, on February 18. The premium is a $1.88 credit per contract share and the stock at the time of entry was priced at $94.76.

The Implied Volatility Ratio stands at 52.9%

Premium:	$1.88	Expire OTM
MS-iron condor	Strike	Odds	Delta
Calls
Long	105.00	89.0%	14
Break-even	101.88	82.0%	21
Short	100.00	75.0%	28
Puts
Short	90.00	68.0%	30
Break-even	86.88	75.1%	23
Long	85.00	82.2%	16

The premium is 37.6% of the width of the position’s short/long spreads. The profit zone covers a 7.5% move to the upside and a 9.1% move to the downside.

The risk/reward ratio is 1.7:1, with maximum risk of $312 and maximum reward of $188 per contract.

How I chose the trade. The trade was placed to coincide with MS’s earnings announcement, before the opening bell on the day after entry. The short strikes were set to coincided with an expected move of $2.96 either way, based on options pricing, which gives a price range of $91.80 to $97.72.

By Tim Bovee, Portland, Oregon, January 18, 2022

Disclaimer

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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