Update 5/18/2022: I exited my short bull put vertical spread on LOW, 30 days before expiration, for a $257 debit per contract/share, a loss before fees of $97 per contract. Shares were trading at $180.15, down $11.25 from the entry level.
The Implied Volatility Rank at exit was 81.8%, down 11.2 points from the entry level.
I exited on the day after entry, for 76.6% of maximum potential loss, because the position moved against my trade and was unprofitable.
Shares fell by 5.9% over one day for a -2,145% annual rate. The options position produced a 37.7% loss for a -13,776% annual rate.
I have entered a short bull put vertical spread on LOW, using options that trade for the last time 31 days hence, on June 17. The premium is a $1.60 credit per contract share and the stock at the time of entry was priced at $191.40.
The Implied Volatility Ratio stood at 93.0%.
|LOW-bull put spread||Strike||Odds||Delta|
The premium is 64% of the width of the position’s short/long spread. The profit zone covers a 5.1% move to the downside and an unlimited move to the upside.
The risk/reward ratio is 2.1:1, with maximum risk of $340 and maximum reward of $160 per contract.
How I chose the trade. The trade was placed to coincide with LOW’s earnings announcement, before the opening bell on the day after entry. The short strikes were set in consideration of the expected move of $10.62 either way, based on options pricing, which gives a price range of $180.78 to $202.20, balanced against the need for a low risk/reward ratio and a sufficiently high premium to make the trade worthwhile.
By Tim Bovee, Portland, Oregon, May 17, 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.
All content on Tim Bovee, Private Trader by Timothy K. Bovee is licensed under a Creative Commons Attribution-ShareAlike 4.0 International License.
Based on a work at www.timbovee.com.
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