Update 12/19/2022: I exited my short bull put vertical spread on December 19, 32 days before expiration, for a $2.16 debit per contract/share, a loss before fees of $21 per contract. Shares were trading at $138.54, down $2.51 from the entry level.
The Implied Volatility Rank at exit was 3.7%, down 13.5 points from the entry level.
I exited on the second trading day after entry because the price moved opposite my position and I was able to exit for a small loss.
Shares fell by 1.8% over four days for a +162% annual rate. The options position produced a 9.7% loss for a -887% annual rate.
I have entered a short bull put vertical spread on DRI, using options that trade for the last time 36 days hence, on January 20, 2023. The premium is a $1.95 credit per contract share and the stock at the time of entry was priced at $141.05.
The Implied Volatility Ratio stood a bit low, at 17.2%.
|DRI-bull put spread||Strike||Odds||Delta|
The premium is 78% of the width of the position’s short/long spread. The profit zone covers a 0.6% move to the downside and an unlimited move to the upside.
The risk/reward ratio is 1.6:1, with maximum risk of $305 and maximum reward of $195 per contract.
How I chose the trade. The trade was placed to coincide with DRI’s earnings announcement, before the opening bell on the day after entry. The short strikes were set to coincide with the expected move of $5.55 either way, based on options pricing, which gives a price range of $135.50 to $146.60. The Zacks Investment Research earnings surprise predictor gave DRI a score of 3.55%, with a rank of 3(hold). The analysts’ consensus is that DRI will announce earnings of $1.41 per share.
By Tim Bovee, Portland, Oregon, December 15, 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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