TanukiTrade

Beat the Market: How I Strangled $SAVE for Maximum Gains

TanukiTrade Updated   
NYSE:SAVE   Spirit Airlines, Inc.


Technical Summary:

  • Strategy: Strangle on SAVE stock
  • Initial Credit: $133 (before commissions and fees)
  • Maximum Profit: $120
  • Required Buying Power (req. bp.): $260 for 39 days
  • Probability of Profit (POP): 85%
  • IV Rank (IVR): Over 94 post-earnings
  • Break-even points: Favorably distant due to high IVR
  • Management opportunities: Anticipated rich rolling options in future


Trade Details (2023-11-06):
Call Sold: 1x SAVE 12/15/23 Call @ $0.80, Strike $15.00
Put Sold: 1x SAVE 12/15/23 Put @ $0.53, Strike $7.50
Commissions and Fees: Minor, deducted from the initial credit

Alright, it's Greg, the TanukiTrader, here to give you the rundown on today's options trading escapades. I took a dive into SAVE stocks which, amidst the earnings aftermath, boasted an IV Rank over 94 due to the hefty market plunge. In the tempest of the airlines' current headwinds, staying cool was the game, and I laid out a strangle to exploit that sweet 85% probability of profit at a 1:2 required buying power ratio—a number I find particularly enticing. The break-evens are sitting pretty, giving us room to breathe, and I'm gunning for a $120 max profit while my obligations are just $260 for the remaining 39 days, thanks to that spicy high IVR. Management options down the line are looking lush, especially when it comes to rolling.

On the ledger, I dispatched a $15 strike SAVE call for $0.80 and a $7.50 strike SAVE put for $0.53, bagging a cool $133 in credit upfront, minor commissions and fees notwithstanding.

To wrap up today's strategy: I positioned a well-balanced strangle on SAVE stock, taking into account the industry's rough patch. My opening balance clocked in at $133 in credit, which promises a rich tapestry of rolling opportunities in the days ahead. On this fine day of November 6, 2023, I have executed the sale of one call and one put option, summing up to $133 in credit, minus the petty cash for costs. Looking forward, I foresee this position offering ample management plays.
Comment:
5 days have passed since the opening, the stock was sold further as a result of the panic. Even so, my original position is sitting in $20 profit. Since I expect some sort of rebounce, I don't touch it. IVR is still high.

The oversold range can act as a sling if the stock stays there for a long time.
Comment:
NOV27: 18DTE, gamma risk now too high, following a substantial bounce; moreover, the IVR has been consistently elevated (120) for the past 20 days. This underscores why low float stocks may not be optimal for naked strategies. Today, I closed out the call leg for the same debit at which I initially sold the entire strangle (1.3), thereby fully mitigating any upside risk. My strategy going forward is to wait until expiration, allowing the short put leg to expire as worthless.
Minimize the losses to small losses (without risk) is a good strategy if you missed up.
Comment:
Trade closed manually:
The put leg expired worthless, slight $0 profit on this trade, not what I've expected, when I've opened this trade.

The lesson is that one should not trade on illiquid paper, no matter how tempting the IVR or R:R ratio may be. The stock went against me, testing the $15 strike, and I deemed it risky to hold any longer. However, in the put leg, due to the previous massive drop, I didn't want to roll up, as if it drops sharply again, I would be at a disadvantage. Risk mitigation seemed like the best solution, as I chose this strangle trade solely for the tempting R:R ratio and did not plan to roll out in time. The outcome was also influenced by the fact that, although volatility fell in the market, the volatility of this stock did not decrease.

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