Update 5/6/2022: I exited my short bull put vertical spread on MGM, 42 days before expiration, for a $2.06 debit per contract/share, a loss before fees of $67 per contract. Shares were trading at $39.02, down $2.75 from the entry level.
The Implied Volatility Rank at exit was 76.8%, down 14.9 points from the entry level.
I exited four days after entry, for 57.1% of maximum potential loss, because the position reached moved contrary to the direction of my trade and showed no sign of reversing.
Shares fell by 6.6% over four days for a -601% annual rate. The options position produced a 32.5% loss for a -2,968% annual rate.
I have entered a short bull put vertical spread on MGM, using options that trade for the last time 46 days hence, on June 17. The premium is a $1.39 credit per contract share and the stock at the time of entry was priced at $41.77.
The Implied Volatility Ratio stood at 91.7%.
|MGM-bull put spread||Strike||Odds||Delta|
The premium is 55.6% of the width of the position’s short/long spread. The profit zone covers a 0.9% move to the downside and an unlimited move to the upside.
The risk/reward ratio is 2.6:1, with maximum risk of $361 and maximum reward of $139 per contract.
How I chose the trade. The trade was placed to coincide with MGM’s earnings announcement, after the closing bell on the day of entry. The short strikes were set to coincide with the expected move of $2.53 either way, based on options pricing, which gives a price range of $39.24 to $44.30.
By Tim Bovee, Portland, Oregon, May 2, 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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