Update 7/26/2022: I exited my short bull put vertical spread on UPS, 24 days before expiration, for a $2.05 debit per contract/share, a loss before fees of $70 per contract. Shares were trading at $180.39, $8.19 from the entry level.
The Implied Volatility Rank at exit was 31.0%, down 33.0 points from the entry level.
I exited on the day after entry, for 56.2% of maximum potential loss, because experience has shown me that waiting to exit from a losing position generally means greater losses, over the short-term at least. I am a short-term trader. Earnings beat the estimates by 15 cents per share. Nonetheless, the share price headed south.
Shares fell by 4.3% over one day for a -1,585% annual rate. The options position produced a 34.1% loss for a -12,463% annual rate.
I have entered a short bull put vertical spread on UPS, using options that trade for the last time 25 days hence, on August 19. The premium is a $1.35 credit per contract share and the stock at the time of entry was priced at $188.58.
The Implied Volatility Ratio stood at 64.0%.
|UPS-bull put spread||Strike||Odds||Delta|
The premium is 54.0% of the width of the position’s short/long spread. The profit zone covers a 3.8% move to the downside and an unlimited move to the upside.
The risk/reward ratio is 2.7:1, with maximum risk of $365 and maximum reward of $135 per contract.
How I chose the trade. The trade was placed to coincide with UPS’s earnings announcement, before the opening bell on the day after entry. The short strikes were set to coincide with the expected move of $9.16 either way, based on options pricing, which gives a price range of $179.42 to $197.74.
By Tim Bovee, Portland, Oregon, July 25, 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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