Update 10/19/2022: I exited my short bull put vertical spread on UAL, 24 days before expiration, for a $0.47 debit per contract/share, a profit before fees of $29 per contract. Shares were trading at $33.43, up $1.75 from the entry level.
The Implied Volatility Rank at exit was 62.4%, down 5.4 points from the entry level.
I exited on the day after entry because the position exceeded 25% of maximum potential profit, my normal exit point for earnings plays, reaching 38.2% of max.
Shares rose by 6.8% over one day for a +2,479% annual rate. The options position produced a 31.6% return for a +3,848% annual rate.
I have entered a short bull put vertical spread on UAL, using options that trade for the last time 31 days hence, on November 18. The premium is a $0.76 credit per contract share and the stock at the time of entry was priced at $36.52.
The Implied Volatility Ratio stood at 55.6%.
|UAL-bull put spread||Strike||Odds||Delta|
The premium is 76% of the width of the position’s short/long spread. The profit zone covers a 0.7% move to the downside and an unlimited move to the upside.
The risk/reward ratio is 1.6:1, with maximum risk of $124 and maximum reward of $76 per contract.
How I chose the trade. The trade was placed to coincide with UAL’s earnings announcement, after the closing bell on the day of entry. The short strikes were set to coincide with the expected move of $2.04 either way, based on options pricing, which gives a price range of $34.84 to $38.56. The Zacks Investment Research earnings surprise predictor gave UAL a score of 5.22%, with a rank of Hold (3). The analysts’ consensus is that UAL will announce earnings of $2.21 per share.
By Tim Bovee, Portland, Oregon, October 18, 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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