Is This Analyis Correct for My Credit Spread:

[Roark]

For the August 12, 2022 expiry of PBR options, on Friday I sold a put at a strike of 14 and bought a put at a strike of 12 for a credit of $165 per contract. The most I can lose is the difference between the strikes less the credit, so max loss is $35 per contract. Therefore the reward to risk is about 4.7 to 1.

The breakeven point is PBR closing at 12.35 at expiration. Based on the volatility of the stock, the probability of profit (not necessarily max profit) should be greater than 68% (a one sigma move in the underlying).

PBR is volatile. I could certainly see PBR trading down by August 12 to 12.35 or less. The company had a great earnings report and the stock shot up. Here's an image of the risk profile for the trade:

 

[earth_imperator]

You should provide all the following data for each position, to make it easy for others to be able to quickly try it out in their own analysis tools, for then giving you feedback:
Long/Short, Call/Put, Spot, Strike, DTE, Premium (or IV), Qty

 

[earth_imperator]

For the August 12, 2022 expiry of PBR options, on Friday I sold a put at a strike of 14 and bought a put at a strike of 12 for a credit of $165 per contract. The most I can lose is the difference between the strikes less the credit, so max loss is $35 per contract. Therefore the reward to risk is about 4.7 to 1.

The breakeven point is PBR closing at 12.35 at expiration.

Right, verified & confirmed.

Another important metric for me is the percent distance from current spot to the B/E spot:
Assuming Spot=14.45 gives: 12.35 / 14.45 * 100 - 100 = -14.53 %
Ie. the loss zone begins if the stock falls more than 14.53% in the remaining time of 7 days till expiration.

See also https://optioncreator.com/stvsden
(just ignore the wrong IV calcs of the program when one enters the Premium).

Based on the volatility of the stock, the probability of profit (not necessarily max profit) should be greater than 68% (a one sigma move in the underlying).

PBR is volatile. I could certainly see PBR trading down by August 12 to 12.35 or less. The company had a great earnings report and the stock shot up. Here's an image of the risk profile for the trade:

View attachment 291282

 

[TheDawn]

For the August 12, 2022 expiry of PBR options, on Friday I sold a put at a strike of 14 and bought a put at a strike of 12 for a credit of $165 per contract. The most I can lose is the difference between the strikes less the credit, so max loss is $35 per contract. Therefore the reward to risk is about 4.7 to 1.

The breakeven point is PBR closing at 12.35 at expiration. Based on the volatility of the stock, the probability of profit (not necessarily max profit) should be greater than 68% (a one sigma move in the underlying).

PBR is volatile. I could certainly see PBR trading down by August 12 to 12.35 or less. The company had a great earnings report and the stock shot up. Here's an image of the risk profile for the trade:


View attachment 291282

If you do see a high probability of the underlying dropping below the short leg of your credit spread, why did you get the credit spread? What you did is called a bull put spread; it's taken with the view that the underlying will go up and will not drop below $14 especially when you did the spread ATM. If you see a high chance that the underlying will go down, you should've either done a credit spread with the short leg below at least $12.35 or done a call credit spread which is called a bear spread otherwise there is a high chance that you will make a loss. All the premiums that you collected today is nothing; it would be all taken away. And since this is not a cash-settled option, you will also be expected to have enough money to buy the shares should your short leg becomes ITM. If your broker sees that you might not have enough money to cover the purchase, your short leg position may be force-liquidated even before the expiration at a price that's lot worse than the strike because before expiration, the option has extrinsic value over its intrinsic value.

I hope it doesn't happen to you that the option actually goes up by its expiration date but just want to let you know what could happen and what you can expect.

 

[Roark]

PBR is volatile, but I am expecting it to go up. It's an Investor's Business Daily stock with a composite rating of 99/99, an earnings increase of 1,273% over last year, and a dividend yield of 44%. PBR is an oil company based in Brazil where most of its revenue comes from. On Friday, I think PBR formed a cup-and-handle. So it's a pretty bullish chart with good underlying fundamentals and I anticipate my long and short puts will expire worthless on Friday. But I could be wrong, which is why I'm long the put at 12.

Isn't there a way to hedge if price starts to move against my position, by using calls for another credit spread and convert the spread into an iron condor?

I could also just buy a put at a strike of 13.5 and sell my 12 strike put. As of Friday close, the bid-ask was 0.70/1.55 for the 13.5 strike put. If I bought that put at 1.55 and sold my 12 strike put for 0.34, that would put the minimum profit at about $50 per contract and the max at about $100 per contract.

 

[stepandfetchit]

For the August 12, 2022 expiry of PBR options, on Friday I sold a put at a strike of 14 and bought a put at a strike of 12 for a credit of $165 per contract. The most I can lose is the difference between the strikes less the credit, so max loss is $35 per contract. Therefore the reward to risk is about 4.7 to 1.

The breakeven point is PBR closing at 12.35 at expiration. Based on the volatility of the stock, the probability of profit (not necessarily max profit) should be greater than 68% (a one sigma move in the underlying).

PBR is volatile. I could certainly see PBR trading down by August 12 to 12.35 or less. The company had a great earnings report and the stock shot up. Here's an image of the risk profile for the trade:


View attachment 291282

Looks like a nice trade!

 

[taowave]

According to TOS,its going Ex Div on the 12th..Looks like a massive dividend..

Are you aware of that?

 

[Roark]

According to TOS,its going Ex Div on the 12th..Looks like a massive dividend..

Are you aware of that?

No, I wasn't. You're right. It's going ex-div on Friday and the dividend is 1.126 per share, which means the stock price will open 1.13 lower on Friday. I better buy the 13.5 strike put and sell my my 12 strike put on Monday to lock in a profit.

 

[stepandfetchit]

According to TOS,its going Ex Div on the 12th..Looks like a massive dividend..

Are you aware of that?

Good catch! I missed that!

 

[taowave]

Im seeing the dividend is a bit larger,but I haven't double checked.FWIW,Im not suggesting you adjust your position.The div was priced into the options

No, I wasn't. You're right. It's going ex-div on Friday and the dividend is 1.126 per share, which means the stock price will open 1.13 lower on Friday. I better buy the 13.5 strike put and sell my my 12 strike put on Monday to lock in a profit.