Update 4/29/2022: I exited my short bear call vertical spread on UAL, 21 days before expiration, for a $2.81 debit per contract/share, a loss before fees of $166 per contract. Shares were trading at $52.12, up $5.53 from the entry level.
The Implied Volatility Rank at exit was 38.0%, up 4.0 points from the entry level.
I exited 21 days before expiration, for 73.0% of maximum potential loss, because the position was unprofitable, and I saw no signs on the chart that would suggest the position would turn profitable. At 21 days to expiration a short position has generally gotten the maximum benefit from price decay, measured by Theta (Θ).
Shares rose by 11.9% over nine days for a +481% annual rate. The options position produced a 59.1% loss for a -2,396% annual rate.
I have entered a short bear call vertical spread on UAL, using options that trade for the last time 30 days hence, on May 20. The premium is a $1.15 credit per contract share and the stock at the time of entry was priced at $46.59.
The Implied Volatility Ratio stood at 34.0%.
|UAL-bear call spread||Strike||Odds||Delta|
The premium is 46.0% of the width of the position’s short/long spread. The profit zone covers a 7.6% move to the upside and an unlimited move to the downside.
The risk/reward ratio is 3.3:1, with maximum risk of $385 and maximum reward of $115 per contract.
How I chose the trade. The trade was placed to coincide with UAL’s earnings announcement, after the closing bell on the day of entry. The short strikes were set to coincide with the expected move of $2.29 either way, based on options pricing, which gives a price range of $44.41 to $48.47.
By Tim Bovee, Portland, Oregon, April 20, 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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