The SpaceX explosion and the valuation error made by Lazard capped a tough month for Elon Musk. Following TSLA's uneventful earnings announcement at the beginning of August, TSLA meandered between $220-230 until the last week of August. That's when TSLA precipitated downwards to $200 (and now lower).
On September 1 with TSLA trading at $203, I opened a short straddle (short call and put) with a $205 strike expiring October 21. I felt the elevated IV at 37.4% provided a good opportunity for this position and was hoping that TSLA would stay in the $205 range. The net credit was $22.70. My target exit is ~$14.00.
As of today, the trade is a break-even despite TSLA being down to $194 and IV having increased slightly to 38.7% following the 2% drop in the US markets on Friday. This demonstrates the benefit of time decay in short straddles--I've been wrong on direction and volatility but I'm still a scratch.
As of today, the trade is a break-even despite TSLA being down to $194 and IV having increased slightly to 38.7% following the 2% drop in the US markets on Friday. This demonstrates the benefit of time decay in short straddles--I've been wrong on direction and volatility but I'm still a scratch.
Position summary:
September 1: Sold 21OCT16 205 straddle @ $22.70
September 16, 2016
This trade is working out very well now. TSLA is pinning the 205 strike and IV is down to 34.9%. The straddle is trading 17.70@18.40 Another $4 to go to hit my exit.
September 16, 2016
This trade is working out very well now. TSLA is pinning the 205 strike and IV is down to 34.9%. The straddle is trading 17.70@18.40 Another $4 to go to hit my exit.
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