Lot 2022-2

Morgan Stanley (MS)

Update 7/14/2022: I exited my short bear call vertical spread on MS, 36 days before expiration, for a $1.04 debit per contract/share, a profit before fees of $34 per contract. Shares were trading at $73.10, down $1.65 from the entry level.

The Implied Volatility Rank at exit was 70.1%, up 33 points from the entry level.

I exited on the day after entry because the position reached 25% of maximum potential profit, my normal exit point for earnings plays.

Shares fell by 2.2% over one day for a -806% annual rate. The options position produced a 32.7% return for a +11,933% annual rate.

---

I have entered a short bear call vertical spread on MS, using options that trade for the last time 37 days hence, on August 19. The premium is a $1.38 credit per contract share and the stock at the time of entry was priced at $74.75.

The Implied Volatility Ratio stood at 37.1%.

Premium:	$1.38	Expire OTM
MS-bear call spread	Strike	Odds	Delta
Calls
Long	82.50	84.0%	20
Break-even	78.88	75.0%	29.5
Short	77.50	66.0%	39

The premium is 55.2% of the width of the position’s short/long spread. The profit zone covers a 5.5% move to the upside and an unlimited move to the downside.

The risk/reward ratio is 2.6:1, with maximum risk of $362 and maximum reward of $138 per contract.

How I chose the trade. The trade was placed to coincide with MS’s earnings announcement, before the opening bell on the day after entry. The short strikes were set to coincide with the expected move of $3.15 either way, based on options pricing, which gives a price range of $71.60 to $77.90.

By Tim Bovee, Portland, Oregon, July 13, 2022

Disclaimer

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.

License

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.