Didn’t get around to posting this on Twitter Monday to get the real-time stamp as is often my custom with trades like these but now that’s it is stopped out, I thought I’d note it anyway.
I first wrote about this short-strangle strategy in this post in September:
As per the strategy, this was a position to be taken 30 minute into the open Monday (see the green vertical line on the chart below for reference). SHOP closed that bar at 441.01 which made the short strangle an out-of-the-money 450 call and the 430 put, a ten-point spread on each side of the stock price and a 20-point spread over all. The option expiration was this Friday, 1/17.
The stop loss was on a five-minute close by the stock above or below either strike.
If all went well, meaning SHOP stayed between 450 and 430 for the week both the call and the put would expire worthless and earn approximately $850 per contract, a 9.6% gain on the cash margin required for the trade.
All did not go well as the stock broke 450 this morning (see the red line on the chart for reference), which closed out the strangle. Still there was bit of profit, about $183 per contract, 19% on the price of the strangle, 2% on the margin required. SHOP could fade back below 450 by Friday’s close (which wouldn’t surprise me) which would reap the full reward for the strategy but this stop discipline is crucial, otherwise this strategy can have unlimited losses.
UPDATE: At the close of the week SHOP did not slip back below 450 but the flush in the call premium, along with the put going worthless, would have this strangle gaining approximately $427 per contract, a gain of 4.8% on the margin requirement. But it would haven’t taken a different stop-loss strategy to capture the end-of-the-week return.
P.S. Shorted a 460c/440p strangle on the bar after the other stopped out for a potential gain of about $485 per contract on Friday’s expiration.
UPDATE: This strangle which replace the other went well with both the call and the put expiring worthless for a gain of about $475 per contract, a gain of 5.5% on the margin requirement.