Update 3/30/2022: I exited my bear call vertical options spread on PVH, 51 days before expiration, for a $0.63 debit per contract/share, a profit before fees of $117 per contract. Shares were trading at $86.01, down $1.71 from the entry level.
The Implied Volatility Rank at exit was 20.4%, down 19.7 points from the entry level.
I exited because the position reached 30% of maximum potential profit, above my normal 25% exit point for earnings plays.
Shares declined by 1.9% over one day for a -712% annual rate. The options position produced a 185.7% return for a +67,786% annual rate.
I have entered a short bear call options spread on PVH, using options that trade for the last time 52 days hence, on May 20. The premium is a $0.90 credit per contract share and the stock at the time of entry was priced at $87.72.
The Implied Volatility Ratio stood at 40.1%.
|PVH-bear call spread||Strike||Odds||Delta|
The premium is 36% of the width of the position’s short/long spread. The profit zone covers a 15% move to the upside and an unlimited move to the downside.
The risk/reward ratio is 4.6:1, with maximum risk of $410 and maximum reward of $90 per contract.
How I chose the trade. The trade was placed to coincide with PVH’s earnings announcement, after the closing bell on the day of entry. The short strikes were set to coincide with the expected move of $2.60 either way, based on options pricing, which gives a price range of $85.55 to $90.75, adjusted for time to expiration. The options used for estimating the spread were 16 days away from expiration, and so to account for the uncertainty, in the trade I used an unadjusted range, $77.76 to $98.54, providing a greater chance of success in return for a higher risk/reward ratio.
By Tim Bovee, Portland, Oregon, March 29, 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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