We have a couple of individual stock short delta trades I wanted to check in on and talk about how we’re managing them.
The first to look at is Coca-Cola (KO) as it’s a March expiration and has gone from a loser to a winner with a selloff in shares the past few days. Here’s the trade from February 10th:
TRADE: KO ($42.55) Buy to open March 42/40 Put Spread for 50 cents
-Buy to open 1 March 42 put for .72
-Sell to open 1 March 40 at .22
The thought process at the time was that the stock was overvalued at 21x with only hopeful sales growth. But that becomes less of a thesis the closer we get to expiration as the stock is now at the whims of daily market pressures. Today, the stock is down 2% at 41.50. What that means is that intrinsically the put spread is worth .50. But mark to market it’s currently worth about .90. What that means is we currently don’t have a ton of room to work with if the stock was to find its footing in the next week or so. However, the lows in late Jan and early Feb were at the $41 level. That’s probably where we’d take the money and run if we saw that in the next week. The structure is 50 deltas here so that would mean about .25 in additional profits. If we kept 42 as a stop to the upside and sold there that would mean only a slight winner worth about .60 or so. So that makes sense as a mental stop.
With the Micron (MU) trade we have more time. Here’s that trade from Feb 13th:
TRADE: MU ($31.75) Bought the April 31/26 put spread for 1.30
-Bought to Open 1 MU April 31 put for 1.68
-Sold to Open 1 MU April 26 put at .38
MU is doing that whole death cross thing lately:[caption id="attachment_51736" align="aligncenter" width="429"] MU chart from LiveVol Pro[/caption]
It too is nearing those late Jan and early Feb lows but we have some time in this one to see if it can hold $28. Right now it’s worth about 2.30 or so, so a nice dollar gain so far. Intrinsically it’s worth about the same so decay is not really a big effect t the moment. It’s about 47 deltas here so we have some room for error on a bounce here. And it should be about a double down near $28 support. Of course we’d love to see it fail at that level because the next significant level below that is $26, which happens to be the short strike of our structure.