August 17, 2017

Selling Puts on Twitter and a Few Credit Spreads

In yesterday’s post  I mentioned a bull put spread in UVXY. well, if I liked it then, I love it now. I mentioned the June 42/41 bull put spread going for $0.30. The spread is now selling for approximately $0.38. But, that was yesterday and UVXY decided to push 3.8% lower today. But it doesn’t hide the fact that the spread still has a 78.56%, down from 80.23% yesterday. Moreover, the delta of the 42 strike sits at 0.16, so we are still safely below an adjustment of any kind (typically occurs when the the delta hits 30-35).

Another underlying that looks interesting for a credit spread trade, more specifically, a bear call spread, is in the XLE. XLE has pushed into a short-term overbought and the June 99/101 spread is trading for approximately $0.25 with a probability of success slightly above 83%. Not bad.

On another topic, if you Twitter is not on your radar, it better be. If you ever wanted a good opportunity to sell puts, here’s your chance. The sharp decline has pushed the implied volatility to over 64% in June. If you think the stock is bottoming soon, inflated premium means  some wonderful selling opportunities should be available.

Wouldn’t you know it the June 25 puts are selling for $0.65 which equates to a 13% gain on a 20% capital requirement or 2.6% cash required. Again, not too bad considering you have a margin of error of over 18%. Of course, if I wanted to bring in a bit more premium by lowering my probability of success slightly, I could bring in $0.85 selling the June 26 strike  or $1.10 for the $27 strike. Going with the 27 strike would create a margin of error around 13.6% for a probability of success a tad over 67.5%.

Just some food for thought.

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