The market became way too confident in recent days and then the CPI came in higher than expected. This wiped out all of last week's gain.
The great news for options traders is that a fresh study shows that the market tends to stay at the new level for at least 3-4 weeks after a 4-5% drop in a single day. That's the perfect scenario for options traders.
Over the past week I sold a few call positions and they all benefited from the drop. I only closed two of them today as am waiting for the volatility to drop so that I can close the other ones at a much higher profit.
Reminder: generally when we a stock goes up and we sell a call option the IVR (volatility) tends to be relatively low. When the price drops suddenly then the IVR jumps up so even though our call position benefits from the price movement the IVR increase reduces our gain so we have to wait for it to drop before we close our position.
So what's my trade for today?
I went back to a trade that have worked out for me many times: #AAL (#AmericanAirlines) put at $14 strike. I selected a weekly option right before next earnings. My strike is above the current price level, which means I am very bullish on this stock.
AAL Daily Chart
Trade Type: Short Put
Expiry: 14 Oct
IV Rank: 47.3
Cap Req: $276
Annualised Prof at Expiry: 418%
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.