Update 5/12/2022: I exited my short bull put vertical spread on DIS, 36 days before expiration, for a $3.91 debit per contract/share, a loss before fees of $101 per contract. Shares were trading at $103.38, down $5.68 from the entry level.
The Implied Volatility Rank at exit was 51.5%, down 50.2 points from the entry level.
I exited on the day after entry, for 55.1% of maximum potential loss, because the position was unprofitable, despite analyst forecasts that a positive earnings surprise was likely. Instead, the stock lost value.
Shares fell by 5.2% over one day for a -1,901% annual rate. The options position produced a -27.2% loss for a -9,428% annual rate.
I have entered a short bull put vertical spread on DIS, using options that trade for the last time 37 days hence, on June 17. The premium is a $2.90 credit per contract share and the stock at the time of entry was priced at $109.06.
The Implied Volatility Ratio stood at 109.06%.
|DIS-bull put spread||Strike||Odds||Delta|
The premium is 58% of the width of the position’s short/long spread. The profit zone covers a 1.1% move to the downside and an unlimited move to the upside.
The risk/reward ratio is 2.4:1, with maximum risk of $710 and maximum reward of $290 per contract.
How I chose the trade. The trade was placed to coincide with DIS’s earnings announcement, after the closing bell on the day of entry. The short strikes were set with consideration given to the expected move of $9.16 either way, based on options pricing, which gives a price range of $99.90 to $118.22.
By Tim Bovee, Portland, Oregon, May 11, 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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