Updates – BIDU Put Spreads

by CC February 24, 2017 10:01 am • Trade Updates

Yesterday we previewed Baidu’s (BIDU) Q4 earnings and detailed two bearish trade ideas into the print. The stock is lower by about 4.5% this morning so I wanted to check in on those trade ideas and see how they fared. The first was a vertical put calendar, selling a put expiring today at the implied move, and using those proceeds to help finance a put in March at a higher strike (and closer to the money). Here was the trade idea:

BIDU ($185) Buy the Feb24th 175 / March 182.5 calendar put spread for 3.75
  • Sell 1 Feb24th 175 put at 1.00
  • Buy 1 March 182.50 put for 4.75

With BIDU 176.50 this trade idea is worth 7.25 vs the 3.75 initial cost, so almost a double. The Feb24th 175 puts are worth about .75 vs the 1.00 initial sale cost. That’s despite the stock being down $8. That shows you what happens to vol in an option into an event that expires the next day. (vol is down 42 points in Feb24th options). As far as trade management this trade was focused on the event itself with optionality to have a small move lower continue for the next few weeks. But since we got the move to the area we were targeting, the entire trade can be closed for a nice profit here.

The second trade idea was looking out a few months and targeting a larger moved lower:

BIDU ($185) Buy April 180 / 155 put spread for $5
  • Buy to open 1 April 180 put for $5.80
  • Sell to open 1 April 155 put 80 cents

With the stock 176.50 this trade is worth about $7. As far as trade management it could make sense to roll up the lower strike to reduce risk. Buying the 155 put to close and selling the 165 put to open reduces cost by about 1.50. The resulting position is the 180/165 put spread for 3.50 (already in the money by that much and worth $2+ more)