Option Strategy 1.1 - PSTH - Day 1 - Plan

Even the best strategies needs to be tested. And since Td Ameritrade is giving "paper money", let's test out my option strategies. I will be documenting : 

1) P/L open , P/L day & P/L YTD

2) Readings for both calls ( 1 buying & 1 selling) - implied volatility &  time value (taken every min. from 9:30 am - 4 pm EST 

Basis for the test trade  

I will be picking PSTH option for the test trade. This is a spac sponsored by Bill Ackman . Spac has a price protection that it can never go below that mark - $20 per share. Also this is close to a merger , thereby giving high volatility to the call that I will be selling. Let's look at the trade I will be entering tomorrow when the market opens :

Closing price as of 3/16/2021 - PSTH - $27.34




 

 







Description of the trade with projected P /L from Ameritarde (not true in this case since we will be rollover the options)










Final screen for confirmation











Things to consider - Broker will hold capital( $1,014.20 instead of $286.30) in the margin account even though the cost of the trade is $286.30. 

Note : Exact trade would be slightly different tomorrow because of the price could change at open .

So theoretically:

The total cost of this trade : $286.30

Break even stock price      : $22.86

Current stock price            : $27.34

Maximum Loss                  :$286.30 ( instead of $734) - on Dec 21 2021

Maximum Gain                  : $2000 - $286.30   =  $1,713.70 - ( rollover + sell commissions)

Risk / reward                      : 286.30 / 1,713.70  =   0.16 

Fine print for this trade :

1) Time value / theta decay will benefit in the long run ( till Dec 21 2021).

2) Call buy options needs to be rotated every month. Main goal is to pay less premium for the call option (buying one).

3) Implied volatility difference will also benefit in long run.

Let's document today's activity of these two options (Taken every 60 sec)- 

16 Apr 21 20 C (Buy)

17 Dec 21 40 C (Sell)


 











****Edit - Date is 03.16.2021 instead of 03.06.2021


Related links 

My Option Strategy 


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