Made my first trade today! I entered a 4x Oct CVX 120/115 bull put spread for $206/contract. My reward/risk is 70.6%, and my break-even is $117.94. Currently, it's trading at $117.87. Tell me, when entering spreads, since IV always reverts to the mean, should I sell the put with the highest IV in the vol skew, buy the put with the lowest, and buy/short a number of shares to get delta neutral?
Its about options vega. atm option always has a greater vega than otm or itm option. atm option shows the greater total point increase when volatility is raised in the model, while otm options show the greater percent increase. I prefer the total point increase, when vol rises buy the atm and sell the otm, and vice versa.
I like the trade but interested to hear your thoughts behind it. Today marks CVX's first lower low coming off the first lower high on the yearly chart, why choose today to initiate this trade? In addition CVX had a recent double top and CVX price just broke below the 200 dma. Overall seems like a pretty bearish chart for CVX..on second thought, I don't really like the trade.
so how are you managing this trade as you are taking some pretty serious heat, down 40% I believe? or close to it. Are you willing to just hold til expiration and take the $800+ loss is needed?
I BTC'ed the short put for $3.96, which I STO'ed for $2.72, so I took a $1.24 loss. I then STO'ed a 4x 115 call for $2.27. As long as CVX trades below $118.09 by expiration, I'll profit.
well.. I guess that's a good way to manage the trade. But something you need to ask yourself is 2 days ago you thought CVX would close above 118, now you believe it will close below 118. My question for you is did you actually have a bullish view on the stock 2 days ago and do you actually have a bearish view on the stock now? just wondering your reasoning behind the trade. In my opinion all that is the most important thing. A lot of people would answer my question as "I initiated the trade because I liked the $2 credit." and not "I had a very bullish stance/viewpoint on the stock, and this is how I executed my stance"
I'm going to say I was an idiot. But, at least I managed to save it. I realized that my long term outlook on the stock was bullish, but long-term and short-term behavior are quite different. I'm going to continue following CVX, and when put/call ratio is low, and the IV of back month calls is high, I'm going to write front-month puts to acquire shares, while writing back-month calls.
imo its better to not just "sell" options in some routine strategy.. Options enable many expressions.. don't get fixated on one..
Next month, I'm going to sell ATM strangles on stocks the day prior to their earnings release. It might be too late to take the opposite position, and close the day prior to earnings. And isn't it true 90% of options expire worthless? So doesn't it make sense to sell options?