Update 4/26/2022: I exited my short bear call vertical spread on GE, 52 days before expiration, for a $1.29 debit per contract/share, a profit before fees of $52 per contract. Shares were trading at $83.24, down $4.05 from the entry level.
The Implied Volatility Rank at exit was 61.8%, down 14.3 points from the entry level.
I exited because the position reached 28.7% of maximum potential profit, a few points beyond my normal exit point for earnings plays, 25% of max.
Shares fell by 4.6% over one day for a -1,694% annual rate. The options position produced a 40.3% return for a +14,713% annual rate.
I have entered a short bear call vertical spread on GE, using options that trade for the last time 53 days hence, on June 17. The premium is a $1.81 credit per contract share and the stock at the time of entry was priced at $87.29.
The Implied Volatility Ratio stood at 76.1%.
|GE-bear call spread||Strike||Odds||Delta|
The premium is 72.4% of the width of the position’s short/long spread. The profit zone covers a 5.2% move to the upside and an unlimited move to the downside.
The risk/reward ratio is 1.8:1, with maximum risk of $319 and maximum reward of $181 per contract.
How I chose the trade. The trade was placed to coincide with GE’s earnings announcement, before the opening bell on the day after entry. The short strikes were set to coincide with the expected move of $4.28 either way, based on options pricing, which gives a price range of $82.93 to $91.49. I skewed the short call in the position toward the at-the-money mark in order to get a better risk/reward ratio.
By Tim Bovee, Portland, Oregon, April 25, 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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