Update 4/29/2022: I exited my short bear call vertical spread on PHM, 50 days before expiration, for a $1.06 debit per contract/share, a profit before fees of $7 per contract. Shares were trading at $42.13, down $0.24 from the entry level.
The Implied Volatility Rank at exit was 50.8%, down 17.5 points from the entry level.
I exited because the position was minimally profitable, two days after entry. Rather than risking a possible loss, I decided to free up the funds for future trades.
Shares declined by 0.6% over two days for a -103% annual rate. The options position produced a 6.6% return for a +1,205% annual rate.
I have entered a short bear call options spread on PHM, using options that trade for the last time 51 days hence, on June 17. The premium is a $1.13 credit per contract share and the stock at the time of entry was priced at $42.37.
The Implied Volatility Ratio stood at 68.3%.
|PHM-bear call spread||Strike||Odds||Delta|
The premium is 45.2% of the width of the position’s short/long spread. The profit zone covers an 8.9% move to the upside and an unlimited move to the downside.
The risk/reward ratio is 3.4:1, with maximum risk of $387 and maximum reward of $113 per contract.
How I chose the trade. The trade was placed to coincide with PHM’s earnings announcement, before the opening bell on the day after entry. The short strikes were set to coincide with the expected move of $3.33 either way, based on options pricing, which gives a price range of $39.49 to $46.15.
By Tim Bovee, Portland, Oregon, April 27, 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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