Trade Highlight #2
This time I’ve selected quite a similar trade to the previous one. The reason behind this decision is that there are a few key differences. These contain volatility, selling a combination separately and risk management.
Last week we discussed my Short Strangle trade on Tesla. If you haven’t seen that post yet you can find it here.
Here is the trade that I want to highlight:
-P TSLA 31 MAY 2019 $170 $0,94
-C TSLA 31 MAY 2019 $197,50 $0,56
The key difference compared to last week is the lower premium I collected. This is because I was more cautious and decided to sell my call later. This trade started with just the put, I sold it on Tuesday the 28th of May. As there were only four trading day left instead of five, the premium was obviously lower. Also the volatility of Tesla shares themselves went down. The big stock price drop was finished.
As the share price of Tesla went from around $195 to $185 on the 30th of May, I decided to make a combination out of my trade. I sold the call at that point as well. What this meant was that I hoped Tesla would not swing bigger than 8% down, or 6,8% up in one day. This didn’t happen and so I got to keep my $150 or €136,79.
The reasoning behind the trade was the same as the last time around. Tesla has a lot of volatility (albeit it was lower than with the last trade) and I wanted to capitalize on that within a week.
Long story short
I’ve traded a Short Stangle on Tesla again, however this time around I wrote the two options on separate days. This goes to show that when you are not sure how a stock will behave throughout the week, you can make option combinations on separate dates.
Volatility is one of the biggest factors for the option premiums. It was definitely lower than last time around, but still high enough to make such a short trade very interesting.
For four days of having a sold put and one day of having a sold call, I gained $150. This while maintaining a healthy margin of safety.
For any questions regarding options, leave them down below in the comment section or simply hit me up on any of my social media channels!