Lamb Weston Holdings Inc. (LW)

Lot 2022-2

Update 4/29/2022: I exited my short bear call vertical spread on LW, 50 days before expiration, for a $6.80 debit per contract/share, a loss before fees of $4.48 per contract. Shares were trading at $67.92, up $7.97 from the entry level.

The Implied Volatility Rank at exit was 31.3%, down 8.6 points from the entry level.

I exited because the position reached 21 days before expiration, my normal day for managing trades. The position showed no signs of becoming profitable, and as an added incentive, the stock is scheduled no go ex-dividend on May 5 and would almost certainly have been assigned.

Shares rose by 13.4% over 23 days for a +212% annual rate. The options position produced a 65.9% loss for a -1,046% annual rate.

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I have entered a short bear call options spread on LW, using options that trade for the last time 44 days hence, on May 20. The premium is a $2.32 credit per contract share and the stock at the time of entry was priced at $59.65.

The Implied Volatility Ratio stood at 39.9%.

Premium:	$2.32	Expire OTM
LW-bear call spread	Strike	Odds	Delta
Calls
Long	70.00	92.0%	12
Break-even	62.32	73.5%	31.5
Short	60.00	55.0%	51

The premium is 46.4% of the width of the position’s short/long spread. The profit zone covers a 4.5% move to the upside and an unlimited move to the downside.

The risk/reward ratio is 3.3:1, with maximum risk of $768 and maximum reward of $232 per contract.

How I chose the trade. The trade was placed to coincide with LW’s earnings announcement, before the opening bell on the day after entry. The short strikes was set to coincide with the expected move of $1.98 either way, based on options pricing, which gives a price range of $57.65 to $61.61.

By Tim Bovee, Portland, Oregon, April 6, 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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Based on a work at www.timbovee.com.