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Pretty wild market on Monday morning with all that bad news!
Of course, things have settled down and rebounded quite a bit.
Earlier this week I said FDX was over done on Friday being down over $16.00.
Well, I called that before all this new virus news.
My idea was to sell the Jan15 250/200 put spread and collect $2.60.
Looking at the options volatility, the 250’s were trading at 37.68 and the 200’s are showing a 50.85 vol.
Huge difference, right? And why would I be buying the more expensive vol and selling the cheaper vol? It’s totally against my preferred trading strategy.
But remember: When an option is trading $.25 or lower, the volatility doesn’t really matter. What matters is that dollar amount. We are only buying the 200’s for margin purposes and in the event of a catastrophe, we will be limited on our downside risk.
FDX traded down to $268.51 today and closed at $271.40, down $3.63.
Let’s look at that put spread we wanted to sell at $2.60.
The market on the spread is $2.30-$2.53. The put spread is down with the stock down on the day! Exactly (and even better) than we wanted!
Those 250 puts went from a 37.68 implied vol to a 35.52 with the STOCK DOWN!
That is what I am talking about: HOLIDAY DECAY.
Thanks for reading … See You Next Tuesday!
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