Update 10/26/2022: I exited my short bear call vertical spread on BA, 23 days before expiration, for a $0.78 debit per contract/share, a profit before fees of $2 per contract. Shares were trading at $144.67, up $0.66 from the entry level.
The Implied Volatility Rank at exit was 51.5%, down 7.3 points from the entry level.
As is my normal practice with earnings plays, I exited on the day after entry, for a small profit. The position reached 2.5% of maximum potential profit. My preferred exit is 10 times that, at 25% of max. Although BA missed earnings expectations by a large margin, the price of shares barely moved, perhaps because cashflow came it at nearly triple expecations.
Shares rose by 0.5% over one day for a +167% annual rate. The options position produced a 2.6% return for a +936% annual rate.
I have entered a short bear call vertical spread on BA, using options that trade for the last time #24 days hence, on November 18. The premium is a $0.80 credit per contract share and the stock at the time of entry was priced at $144.01.
The Implied Volatility Ratio stood at 58.8%.
|BA-bear call spread||Strike||Odds||Delta|
The premium is 80% of the width of the position’s short/long spread. The profit zone covers a 3.3% move to the upside and an unlimited move to the downside.
The risk/reward ratio is 1.5:1, with maximum risk of $120 and maximum reward of $80 per contract.
How I chose the trade. The trade was placed to coincide with BA’s earnings announcement, before the opening bell on the day after entry. The short strikes were set to coincide with the expected move of $6.07 either way, based on options pricing, which gives a price range of $138.11 to $150.25. The Zacks Investment Research earnings surprise predictor gave BA a score of -1900%, with a rank of Sell (4). The analysts’ consensus is that BA will announce a loss of $0.01 per share.
By Tim Bovee, Portland, Oregon, October 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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Based on a work at www.timbovee.com.
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[…] call vertical spread on BA, using options that trade for the last time on November 18, and have posted an analysis of the […]
[…] earnings play exit. I’ve exited my short bear call options spread on BA for 2.5% of maximum expected profit and have updated the trade analysis with full […]
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