Yesterday TSLA had a serious drop in price of just over 10%. Today the price opened under $120 and the put options were priced accordingly.
The Implied Volatility (IV) Rank was over 60, which is a good place for it to be with this sort of spread trading as a high relative IV drives the price of options up, it's one of the factors that directly affect the extrinsic value of a stock.
Here is the historic chart representing the distance from the price for spread strike entry relative to the time until expiry based on trading days, not calendar days and the successful trades... or at least trades when the price ended above the strike price. The pattern suggests that trades longer than 20 days may have crossed the strike then returned above by the end of the period which leads me to use a different strategy here, but the same spread type.
| 40 Days | 35 Days | 30 Days | 25 Days | 20 Days | 15 Days | 10 Days | 5 Days | Combined | |
| Strike | Win Rate | Win Rate | Win Rate | Win Rate | Win Rate | Win Rate | Win Rate | Win Rate | Win Rate |
| -5% | 71.05% | 76.92% | 74.36% | 71.79% | 66.67% | 74.36% | 72.50% | 77.50% | 73.16% |
| -6% | 73.68% | 76.92% | 76.92% | 71.79% | 69.23% | 76.92% | 72.50% | 80.00% | 74.76% |
| -7% | 73.68% | 82.05% | 82.05% | 76.92% | 79.49% | 76.92% | 82.50% | 87.50% | 80.19% |
| -8% | 78.95% | 82.05% | 84.62% | 76.92% | 79.49% | 79.49% | 90.00% | 87.50% | 82.43% |
| -9% | 81.58% | 82.05% | 87.18% | 87.18% | 84.62% | 82.05% | 90.00% | 92.50% | 85.94% |
| -10% | 81.58% | 82.05% | 87.18% | 89.74% | 87.18% | 87.18% | 95.00% | 95.00% | 88.18% |
| -11% | 84.21% | 84.62% | 87.18% | 92.31% | 87.18% | 89.74% | 95.00% | 97.50% | 89.78% |
| -12% | 86.84% | 84.62% | 89.74% | 92.31% | 89.74% | 89.74% | 95.00% | 97.50% | 90.73% |
| -13% | 92.11% | 84.62% | 89.74% | 92.31% | 89.74% | 94.87% | 95.00% | 100.00% | 92.33% |
| -14% | 94.74% | 87.18% | 89.74% | 94.87% | 89.74% | 97.44% | 95.00% | 100.00% | 93.61% |
| -15% | 94.74% | 87.18% | 89.74% | 97.44% | 89.74% | 100.00% | 95.00% | 100.00% | 94.25% |
| -16% | 94.74% | 87.18% | 89.74% | 97.44% | 92.31% | 100.00% | 95.00% | 100.00% | 94.57% |
| -17% | 94.74% | 89.74% | 92.31% | 100.00% | 94.87% | 100.00% | 97.50% | 100.00% | 96.17% |
| -18% | 94.74% | 89.74% | 92.31% | 100.00% | 94.87% | 100.00% | 97.50% | 100.00% | 96.17% |
| -19% | 94.74% | 94.87% | 94.87% | 100.00% | 94.87% | 100.00% | 97.50% | 100.00% | 97.12% |
| -20% | 94.74% | 94.87% | 94.87% | 100.00% | 94.87% | 100.00% | 100.00% | 100.00% | 97.44% |
| -21% | 94.74% | 97.44% | 97.44% | 100.00% | 97.44% | 100.00% | 100.00% | 100.00% | 98.40% |
| -22% | 94.74% | 97.44% | 97.44% | 100.00% | 97.44% | 100.00% | 100.00% | 100.00% | 98.40% |
The trade entry was this morning at the open for the December 21 105/100 put spread (selling the 105 and buying the 100) for a credit of 75 cents.
This is basically making $75 on a $5 spread which is a $425 risk or a Return On Risk of 17.6% if the option is held to expiry... 31 calendar days (23 trading days on my charts). The 105 strike is about 13% OTM which has a historic win rate of almost 90% (the 20 day column above) or 92% (the 25 day column).
I might consider that the bottom of the spread is the determining number for the risk as that is maximum loss, and the 100 strike is closer to 17% lower than the price which pegs the historical odds between 95 and 100%
Strategy 1 might be to hold the trade through to expiry for the full return and take the slim chance that it might not work out OR aim for 50% profit taking which, with the action of the stock, could take as little as a week.... probably whichever comes first. At this writing (almost 3pm on the same day) the value of this spread has dropped to 55 cents, which is 26.6% profit already.
Let's see where this one goes.
Jeff.
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