Update 3/24/2022: I exited my bear call vertical options spread on DRI, 57 days before expiration, for a $0.70 debit per contract/share, a profit before fees of $25 per contract. Shares were trading at $130.30, $2.15 from the entry level.
The Implied Volatility Rank at exit was 47.5, down 13.2 points from the entry level.
I exited because the position reached 25% of maximum potential profit, my normal exit point for earnings plays.
Shares fell by 1.6% over one day for a -593% annual rate. The options position produced a 32.5% return for a +11,851% annual rate.
I have entered a short bear call options spread on DRI, using options that trade for the last time 58 days hence, on May 20. The premium is a $1.02 credit per contract share and the stock at the time of entry was priced at $132.45.
The Implied Volatility Ratio stood at 60.7%.
|DRI-bear call spread||Strike||Odds||Delta|
The premium is 40.8% of the width of the position’s short/long spread. The profit zone covers a 10.2% move to the upside and an unlimited move to the upside.
The risk/reward ratio is 3.9:1, with maximum risk of $398 and maximum reward of $102 per contract.
How I chose the trade. The trade was placed to coincide with DRI’s earnings announcement, before the opening bell on the day after entry. The short strikes were set to coincide with the expected move of $10.25 either way, based on options pricing, which gives a range of $122.70 to $142.70. The options series used for estimated the movement was 22 days prior to expiration, which with adjustment for the time period gave an unusable range estimate (low price higher than the high price). So I removed the adjustment and set up the trade based on the unadjusted range. The strike price for DRI are $5 apart, further limiting my ability to match the price range estimate.
By Tim Bovee, Portland, Oregon, March 23, 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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