Update 10/11/2022: I exited my short bear call vertical spread on LVS, 10 days before expiration, for a $1.98 debit per contract/share, a loss before fees of $78 per contract. Shares were trading at $37.65, up $2.91 from the entry level.
The Implied Volatility Rank at exit was 81.6%, up 28 points from the entry level.
I exited because the position was showing a loss and expiration was approaching. The options spread produced the maximum possible loss. Shortly after I entered the bear put spread, Chinese authorities reopened the gambling center Macau to tourists, enhancing the profit potential of Las Vegas Sands’ casino operations there. The share price rose dramatically, and for most of my holding period remained at levels that, if I had exited, would have produced a greater loss than I would have incurred by letting the options expire or be exercised.
Shares rose by 8.4% over 18 days for a +170% annual rate. The options position produced a 41.3% loss for a -837% annual rate.
I have entered a short bull put vertical spread on LVS, using options that trade for the last time 28 days hence, on September 21. The premium is a $1.11 credit per contract share and the stock at the time of entry was priced at $34.74.
The Implied Volatility Ratio stood at 53.6%.
|LVS-bear call spread||Strike||Odds||Delta|
The premium is 74% of the width of the position’s short/long spread. The profit zone covers a 3% move to the upside and an unlimited move to the downside.
The risk/reward ratio is 1.7:1, with maximum risk of $189 and maximum reward of $111 per contract.
How I chose the trade. The trade was placed after the Parabolic SARS indicator gave a bear signal for a third day running. The bear signal was confirmed by a negative reading on the Fisher Transform indicator. The Zacks Investment Research ranking was 4, which is also bearish. The short strike was set to coincide with the expected move in the share price of $0.60 either way, based on options pricing, which gives an upper price expectation of $35.34.
By Tim Bovee, Portland, Oregon, September 23, 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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