Credit dollar

[OTM-Options]

Do they have guides for how far should the calls be sold?

They were picking $10.00 (2 strikes) OTM on two Call Credit Spreads and $5.00 OTM (1 strike) on one Call Credit Spread. By selling so close to PCLN's stock price during a very volatile time they would maximize the credit.

BUT if PCLN had bounced up (even a small bounce) after the big drop after earnings then the Credit Spreads would have added to the loss incurred from the original pre-earnings strangle. PCLN just happened to drift down while they were selling Call Credit Spreads, next time they might not be so lucky.

 

[clarodina]

Agree

With price closing down gap the sold call would run the risk of going itm

Any effective methods to counter gap problem esp in stk where the gap is not due to earning and implied volatility is not falling to help with the sold put