Update 5/17/2022: I exited my short bull put vertical spread on HD, one day before expiration, for a $1.10 debit per contract/share, a profit before fees of $66 per contract. Shares were trading at $308.87, up $17.32 from the entry level.
The Implied Volatility Rank at exit was 68.8%, down 21.3 points from the entry level.
I exited on the day after entry, at 64.9% of maximum potential profit, well above my normal exit point for earnings plays, 25% of max.
Shares rose by 5.9% over one day for a +2,168% annual rate. The options position produced a 60.0% return for a +21,900% annual rate.
I have entered a short bull put vertical spread on HD, using options that trade for the last time 32 days hence, on June 17. The premium is a $1.87 credit per contract share and the stock at the time of entry was priced at $291.55.
The Implied Volatility Ratio stood at 90.1%.
|HD-bull put spread||Strike||Odds||Delta|
The premium is 74.8% of the width of the position’s short/long spread. The profit zone covers a 1.6% move to the downside and an unlimited move to the upside.
The risk/reward ratio is 1.7:1, with maximum risk of $313 and maximum reward of $187 per contract.
How I chose the trade. The trade was placed to coincide with HD’s earnings announcement, before the opening bell on the day after entry. The expected move after the announcement is $15.09 either way, based on options pricing, which gives a price range of $277.95 to $308.13. I moved closer in than the price range would suggest for the sake of a lower risk in comparison with the reward.
By Tim Bovee, Portland, Oregon, May 16, 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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