Dell Technologies Inc. (DELL)

Update 11/22/2022: I exited my short bear call vertical spread on DELL, 24 days before expiration, for a $0.90 debit per contract/share, a loss before fees of $23 per contract. Shares were trading at $41.70, up $1.42 from the entry level.

The Implied Volatility Rank at exit was 75.9%, down 1.1 points from the entry level.

I exited on the day after entry because that is my usual practice with earnings plays. Earnings beat analysts’ forecast, and shares rose in response. I exited the position for 49.2% of maximum potential loss.

Shares rose by 3.5% over one day for a +1,287% annual rate. The options position produced a 25.6% loss for a -9,328% annual rate.

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I have entered a short bear call vertical spread on DELL, using options that trade for the last time 25 days hence, on December 16. The premium is a $0.67 credit per contract share and the stock at the time of entry was priced at $40.28.

The Implied Volatility Ratio stood at 77%.

Premium:	$0.67	Expire OTM
DELL-bear call spread	Strike	Odds	Delta
Calls
Long	45.00	91.0%	12
Break-even	43.17	77.0%	27
Short	42.50	63.0%	42

The premium is 53.6% of the width of the position’s short/long spread. The profit zone covers a 7.2% move to the upside and an unlimited move to the downside.

The risk/reward ratio is 2.7:1, with maximum risk of $183 and maximum reward of $67 per contract.

How I chose the trade. The trade was placed to coincide with DELL’s earnings announcement, after the closing bell on the day of entry. The short strikes were set to coincide with the expected move of $3.38 either way, based on options pricing, which gives a price range of $37.41 to $43.15. The Zacks Investment Research earnings surprise predictor gave DELL a score of -1.35%, with a rank of 4 (sell). The analysts’ consensus is that DELL will announce earnings of $1.59 per share.

By Tim Bovee, Portland, Oregon, November 21, 2022

Disclaimer

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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