Is This Analyis Correct for My Credit Spread:

[CET]

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.

You may want to exit the whole trade Monday and wait until after the dividend is out of the way.

 

[TheDawn]

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.

The long put is a hedge already to the short put. To hedge it further with other instruments, you risk overhedging which is meaningless and it cuts into your profit. If you really feel that bearish for the underlying, then you should've just done a bear call spread or simply buy the long.

So anyway if you do have a bullish outlook about the company for the next few weeks, then leave your position be and see what happens.

 

[TheDawn]

You may want to exit the whole trade Monday and wait until after the dividend is out of the way.

The option is expiring on Aug. 12, the same day as it goes ex-dividend. You think the ex-dividend drop is going to be that large? How much is the dividend?

 

[Roark]

According to barchart.com, the dividend is $1.126 per share. So I expect a drop of 1.13 at the open next Friday. My breakeven is at a stock price of 12.35. Last close was 14.45. With a drop of $1.13, that would put the stock price at 13.32, still above the breakeven point.

I think I can sell my long put and buy another put nearer the money, which will limit the loss to zero or a small profit, while maintaining the potential for a reward of $100 per contract. Alternatively, I could nothing, and leave the risk at a potential loss of $35 per contract, with the possible reward of $165 per contract.

 

[earth_imperator]

According to barchart.com, the dividend is $1.126 per share. So I expect a drop of 1.13 at the open next Friday. My breakeven is at a stock price of 12.35. Last close was 14.45. With a drop of $1.13, that would put the stock price at 13.32, still above the breakeven point.

I think I can sell my long put and buy another put nearer the money, which will limit the loss to zero or a small profit, while maintaining the potential for a reward of $100 per contract. Alternatively, I could nothing, and leave the risk at a potential loss of $35 per contract, with the possible reward of $165 per contract.

What is your PnL calculation basis? Ie. the margin or cash requirement the broker wants as collateral.
Are you trading this spread in a CashAcct or in a MarginAcct?

Here's a hot info tip for you & everybody for reducing the margin requirement (for more profit, percentwise as well absolute when the available capital is optimally used) with such spread trading):
"Vertical Spreads: Lower Margin Requirement Hurdle to Target Capital Efficiency"

S.a. a recent discussion about this topic of vastly reducing the margin (or cash) requirement when trading such spreads.

 

[TheDawn]

According to barchart.com, the dividend is $1.126 per share. So I expect a drop of 1.13 at the open next Friday. My breakeven is at a stock price of 12.35. Last close was 14.45. With a drop of $1.13, that would put the stock price at 13.32, still above the breakeven point.

I think I can sell my long put and buy another put nearer the money, which will limit the loss to zero or a small profit, while maintaining the potential for a reward of $100 per contract. Alternatively, I could nothing, and leave the risk at a potential loss of $35 per contract, with the possible reward of $165 per contract.

The problem is with the short put, not the long put. If you expected that the price would be at 12.XX. I am still puzzled why you would choose to sell the put at $14. That's like giving the money away by making a sure loss. Like I said, the most prudent thing to do would be to sell the put at $12.00 or at least below your expected price at expiry cuz what you are doing is a bull spread. It's a combo that you do when you expect the price to go up and not drop below the short put strike.

 

[taowave]

This is wrong..
At least come up with an argument relating to skew

The problem is with the short put, not the long put. If you expected that the price would be at 12.XX. I am still puzzled why you would choose to sell the put at $14. That's like giving the money away by making a sure loss. Like I said, the most prudent thing to do would be to sell the put at $12.00 or at least below your expected price at expiry cuz what you are doing is a bull spread. It's a combo that you do when you expect the price to go up and not drop below the short put strike.

 

[Roark]

This morning, I sold my 12 strike put and bought a 13.5 strike put for a debit of 0.97 per contract. With that adjustment, I locked in a minimum gain of $18 per contract, and a maximum of $68 per contract.

In addition, I also tracked down the press release from the company regarding the dividend. There is a special and regular dividend going ex-div on August 12, which together total about $1.30. Therefore, I anticipate the stock price to open down on Friday by $1.30.

I'm not sure if the adjustment was advisable. The stock gapped up today, and closed near the high of the day at $15.34. I am expecting both my short and long puts to expire worthless this Friday. Nonetheless, there are a couple of unfilled gaps in the chart now, one starting at about $13.50 and another about $14.50, and there is a trading maxim about retracements to fill gaps.

 

[TheDawn]

This is wrong..
At least come up with an argument relating to skew

Skew??!! Why would skew be relevant here when it's the underlying's PA that's going to dictate everything? Why don't you come up with the argument for skew?

 

[taowave]

Did you look at any upside call spreads to sell?

Where were the 1 or 2 point spreads trading with the strikes 14,15 ,16,17???

You may have been able to create a fly like structure with better reward to risk..

This morning, I sold my 12 strike put and bought a 13.5 strike put for a debit of 0.97 per contract. With that adjustment, I locked in a minimum gain of $18 per contract, and a maximum of $68 per contract.

In addition, I also tracked down the press release from the company regarding the dividend. There is a special and regular dividend going ex-div on August 12, which together total about $1.30. Therefore, I anticipate the stock price to open down on Friday by $1.30.

I'm not sure if the adjustment was advisable. The stock gapped up today, and closed near the high of the day at $15.34. I am expecting both my short and long puts to expire worthless this Friday. Nonetheless, there are a couple of unfilled gaps in the chart now, one starting at about $13.50 and another about $14.50, and there is a trading maxim about retracements to fill gaps.