Update 7/18/2022: I exited my short bear call vertical spread on GS, 32 days before expiration, for a $2.58 debit per contract/share, a loss before fees of $80 per contract. Shares were trading at $300.09, up $10.82 from the entry level.
The Implied Volatility Rank at exit was 38.0%, down 17 points from the entry level.
I exited on the day after entry for 80.1% of maximum potential loss. I had expected a negative earnings surprise based on changes in analyst opinion; the surprise, as it turned out, was positive.
Shares rose by 3.7% over three days for a +4.55% annual rate. The options position produced a 31.0% loss for a -3,773% annual rate.
I have entered a short bear call vertical spread on GS, using options that trade for the last time 35 days hence, on August 19. The premium is a $1.78 credit per contract share and the stock at the time of entry was priced at $289.27.
The Implied Volatility Ratio stood at 55.0%.
|GS-bear call spread||Strike||Odds||Delta|
The premium is 71.2% of the width of the position’s short/long spread. The profit zone covers a 4.3% move to the up and an unlimited move to the downside.
The risk/reward ratio is 1.8:1, with maximum risk of $322 and maximum reward of $178 per contract.
How I chose the trade. The trade was placed to coincide with GS’s earnings announcement, before the opening bell on the day after entry. The short strikes were set to coincide with the expected move of $12.05 either way, based on options pricing, which gives a price range of $280.84 to $297.71.
By Tim Bovee, Portland, Oregon, July 15, 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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