Update 1/26/2022: I exited my short bear call spread position on BA 51 days before expiration, for a $2.12 debit per contract/share, a profit before fees of $71 per contract. Shares were trading at $195.93, down $4.59 from the entry level.
The Implied Volatility Rank at exit was 66.3%, down 10.5 points from the entry level.
I exited because the position reached 25% of maximum potential profit, my normal exit point for earnings plays.
Shares declined by 2.3% over one day for a +836% annual rate. The options position produced a 33.5% return for a +12,224% annual rate.
I have entered a short bear call options spread on BA, using options that trade for the last time 52 days hence, on March 18. The premium is a $2.83 credit per contract share and the stock at the time of entry was priced at $200.52.
The Implied Volatility Ratio stands at 85.6%
|BA-bear call spread||Strike||Odds||Delta|
The premium is 56.8% of the width of the positions short/long spread. The profit zone covers an 8.6% move to the upside and an unlimited move to the downside.
The risk/reward ratio is 2.5:1, with maximum risk of $717 and maximum reward of $283 per contract.
How I chose the trade. The trade was placed to coincide with BA’s earnings announcement, before the opening bell on the day after entry. The short strike was set to coincide with the expected move of $9.50 either way, based on options pricing, which gives a price range of $191.02 to $210.02.
By Tim Bovee, Portland, Oregon, January 25, 2022
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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