Update 3/18/2022: I exited my bull put vertical options spread on FDX, 63 days before expiration, for a $3.10 debit per contract/share, a loss before fees of $67 per contract. Shares were trading at $217.67, down $9.68 from the entry level.
The Implied Volatility Rank at exit was 44.5%, down 22.9 points from the entry level.
When trading resumed after the earnings announcement, the stock opened $8.52 below the previous day’s close. putting the options at 41% of the maximum potential loss, and quickly fell further. The decline was within the expected movement based on options prices before the announcement.
Shares rose declined by 4.3% over one day for a -1,554% annual rate. The options position produced a 21.6% loss for a -7,889% annual rate.
I have entered a short bull put vertical spread on FDX, using options that trade for the last time 64 days hence, on May 20. The premium is a $2.43 credit per contract share and the stock at the time of entry was priced at $227.35.
The Implied Volatility Ratio stood at 67.4%.
|FDX-bull put spread||Strike||Odds||Delta|
The premium is 48.6% of the width of the position’s short/long spread. The profit zone covers a 6.6% move to the downside and an unlimited move to the upside.
The risk/reward ratio is 3.1:1, with maximum risk of $757 and maximum reward of $243 per contract.
How I chose the trade. The trade was placed to coincide with FDX’s earnings announcement, after the closing bell on the day of entry. The short strikes were set to coincide with the expected move of $10.54 either way, based on options pricing, which gives a price range of $217.01 to $238.09. The strike prices are $10 apart, which required that the short put strike be a bit lower than usual in order to stay beyond the range suggested by the options pricing.
By Tim Bovee, Portland, Oregon, March 17, 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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