Update 10/13/2022: I exited my short bear call vertical spread on October 13, 36 days before expiration, for a $1.03 debit per contract/share, for neither a profit nor a loss. Shares were trading at $29.05, down $0.10 from the entry level.
The Implied Volatility Rank at exit was 63%, down 7.5 points from the entry level.
I exited on the day after entry because the position was an earnings play, and my rules is to get out quickly, win or lose. In this case at the opening bell, the shares declined rapidly and then rose. i exited during the decline.
Shares fell by 0.3% over one day for a -125.2% annual rate. The options position produced a no return.
I have entered a short bear call vertical spread on DAL, using options that trade for the last time 37 days hence, on November 18. The premium is a $1.03 credit per contract share and the stock at the time of entry was priced at $29.15.
The Implied Volatility Ratio stood at 70.5%.
|DAL-bear call spread||Strike||Odds||Delta|
The premium is 68.7% of the width of the position’s short/long spread. The profit zone covers a 6.4% move to the upside and an unlimited move to the downside.
The risk/reward ratio is 1.9:1, with maximum risk of $394 and maximum reward of $206 per contract.
How I chose the trade. The trade was placed to coincide with DAL’s earnings announcement, beofre the closing bell on the day after entry. The short strikes were set to coincide with the expected move of $1.55 either way, based on options pricing, which gives a price range of $27.61 to $30.71. The Zacks Investment Research earnings surprise predictor gave DAL a score of -2.41% — a negative surprise — with a rank of 3 — hold. The analysts’ consensus is that DAL will announce earnings of $1.56 per share.
By Tim Bovee, Portland, Oregon, October 12, 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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Based on a work at www.timbovee.com.
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