Update 4/18/2022: I exited my short bear call vertical spread on SCHW, 32 days before expiration, for a $7 debit per contract/share, a profit before fees of $0.48 per contract. Shares were trading at $73.03, down $11.48 from the entry level.
The Implied Volatility Rank at exit was 47.4%, up 17.2 points from the entry level.
I exited at 87.3% of maximum potential profit, well above my goal of 25% of max on earnings plays. The stock price declined sharply after the company announced it earnings and revenue results that fell short of analyst expectations.
Shares declined by 13.6% over four calendar days — one trading day — for a -1,240% annual rate. The options position produced a 685.7% return for a +62,751% annual rate (a +250,286% annual rate calculated as one trading day).
I have entered a short bear call spread on SCHW, using options that trade for the last time 36 days hence, on May 20. The premium is a $0.55 credit per contract share and the stock at the time of entry was priced at $84.51.
The Implied Volatility Ratio stood at 30.2%.
|SCHW-bear call spread||Strike||Odds||Delta|
The premium is 44.0% of the width of the position’s short/long spread. The profit zone covers a 7.1% move to the upside and an unlimited move to the downside.
The risk/reward ratio is 3.5:1, with maximum risk of $195 and maximum reward of $55 per contract.
How I chose the trade. The trade was placed to coincide with SCHW’s earnings announcement, before the closing bell on Monday, April 18, a long holiday weekend after the day of entry. The short strikes were set to coincide with the expected move of $4.45 either way, based on options pricing, which gives a price range of $81.62 to $87.40.
By Tim Bovee, Portland, Oregon, April 14, 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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