Market comments 20220819

Finally a decent drop in the market today, which is likely related to the Aug option expirations.

The VIX barely moved up which gives me the feeling that we might see a bit of side-way movement this coming week. That would work perfectly for me at the moment.

This coming week many options traders will roll their positions to October expirations to collect some additional premiums and re-centre their positions.

So what was my final trade for the week?

#AAL (#AmericanAirlines). The stock fell in the past 3 days to a fairly attractive level for a naked put at $14. When I sell a put option I normally ask myself: at the strike price, would I be happy to buy a piece of the company? If my answer is yes then I am comfortable selling a naked put. Obviously, as with every investment, this strategy has great risks as well. For example, earlier this year I sold naked put against Paypal, Facebook, Netflix after large falls. But they just kept on going down to levels that nobody predicted so I lost a lot on those trades.

AAL is different. The price is not $300+. It's $14. If the company goes bust then the price drops $14. In options terms, it's $1400 per options. Can the company go bust? Yes of course. Will it go bust? Very unlikely. They employ way too many people and airlines are critical for the economy to keep going so I would think that the government would step in in case of serious trouble.

To sum it up, I don't see the stock going below $12. If it does then I would just sell even more put against it as it will bounce back at some point.

The stats

Trade Type: Short Put

Strike: $14

Expiry: 16 Sep

Delta: 44

IV Rank: 30.5

Premium: $0.72

Cap Req: $266

Annualised Prof at Expiry: 353%

IMPORTANT: Studying previous trades provide the opportunity to everyone to learn a great deal so I encourage you to click on the links below and digest the info.

Closed:

Non

Rolled:

https://www.tycoonitos.com/community/market-comments/market-comments-20220630

Let me know your thoughts.