On January 15, 2021, I posted about how I used a short straddle with a deep in-the-money put. From the questions that I’ve received so far, I realized that this method can be difficult to follow. Therefore, I’ve decided to show a real example trade as I do it. This post is that example. It will be helpful to read the post on the method before reading this post. Since this is a dynamic trade that’s conditional on a number of factors, the trade will go on for multiple weeks. I’ll explain what I’m doing and why as I go along. The beginning (i.e. first opening) will be at the bottom of this post, and I’ll keep adding to the post as I make changes. This post is not intended as advice, and it may not turn out to be profitable, so please don’t blindly follow me with real money.
3/1/2021
ZM earnings will be released after today’s market close. The shares rose this morning (along with most stocks). I decided to close down the trade to avoid the risk of the earnings release sending the shares down. The trades were executed when ZM shares were trading at around $394. The short $370 straddles were closed using a limit order combination trade, and the short $460 puts were closed using a separate limit order.
- Buy to Close 3 contracts ZM 5Mar $370C: executed for $35.45/share credit
- Buy to Close 3 contracts ZM 5Mar $370P: executed for $13.53/share debit
- Buy to Close 3 contracts ZM 5Mar $460P: executed for $71.04/share credit
The 5Mar $370Cs were closed for a cost of $10.635.86 and a realized loss of $3196.76. The 5Mar $370Ps were closed for a cost of $4059.86 and realized gain of $3379.24. The 5Mar $460Ps were closed for a cost of $21,312.86 and realized gain of $6766.13.
Overall, this ongoing trade resulted in a net profit of $5393.54. The details of each trade can be seen in the table of cumulative realized gains/losses below. At the end of this ongoing trade ZM shares were at about $394, about $19 higher or 5% higher than the ZM share price at the start on 1/21/2021. The thesis that the shares would rise into earnings did not really play out largely because the tech sector sold off significantly in the two week period between 15Feb and 26Feb. I made a mistake on 23Feb which resulted in some losses that could have been avoided. However, the point of me posting this example trade was to show how I execute this technique when I believe that a stock will have a tendency to rise in the weeks prior to a catalyst event. If the shares rise or stay the same, I will make money. If the shares slowly decline a little I will make a little money. The biggest risk is a rapid, steep selloff in the shares.
Table of cumulative realized gains/losses
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| ZM | 2/5 | $375C | 1/29 | 2/4 | $2819.07 | ($4386.86) | ($1567.69) | ||
| ZM | 2/5 | $375P | 1/29 | 2/4 | $4289.03 | ($240.86) | $4048.17 | ||
| ZM | 2/5 | $425P | 1/27 | 2/5 | $14,218.82 | ($10,869.86) | $3348.97 | ||
| ZM | 2/5 | $390C | 2/4 | 2/5 | $1244.11 | ($6015.86) | ($4771.75) | ||
| ZM | 2/5 | $390P | 2/4 | 2/5 | $1589.09 | $0.00 | $1589.09 | ||
| ZM | 2/12 | $410P | 2/5 | 2/9 | $4259.03 | ($1521.86) | $2738.17 | ||
| ZM | 2/12 | $410C | 2/4 | 2/11 | $4262.03 | ($8589.86) | ($4327.83) | ||
| ZM | 2/12 | $425P | 2/4 | 2/11 | $11,653.88 | ($795.86) | $10,858.02 | ||
| ZM | 2/12 | $440C | 2/11 | 2/12 | $2138.09 | ($69.11) | $2068.98 | ||
| ZM | 2/12 | $440P | 2/11 | 2/12 | $2744.04 | ($2910.85) | ($166.81) | ||
| ZM | 2/19 | $460P | 2/9 | 2/18 | $12,949.85 | $11,370.86 | $1578.99 | ||
| ZM | 2/19 | $430C | 2/12 | 2/19 | $3698.06 | ($69.11) | $3628.95 | ||
| ZM | 2/19 | $430P | 2/12 | 2/19 | $3419.06 | ($3180.87) | $238.19 | ||
| ZM | 2/26 | $420P | 2/19 | 2/23 | $3899.04 | ($19,530.86) | ($15,631.82) | ||
| ZM | 2/26 | $355P | 2/23 | 2/23 | $3479.06 | ($615.86) | $2863.20 | ||
| ZM | 2/26 | $420C | 2/19 | 2/26 | $3848.05 | $0.00 | $3848.05 | ||
| ZM | 2/26 | $380P | 2/23 | 2/26 | $2714.08 | ($3090.86) | ($376.78) | ||
| ZM | 2/26 | $355C | 2/23 | 2/26 | $3449.06 | ($4455.86) | ($1006.80) | ||
| ZM | 2/26 | $460P | 2/18 | 2/26 | $12,358.87 | ($27,180.86) | ($14,821.99) | ||
| ZM | 3/5 | $370C | 2/26 | 3/1 | $7439.10 | ($10,635.86) | ($3196.76) | ||
| ZM | 3/5 | $370P | 2/26 | 3/1 | $7439.10 | ($4059.86) | $3379.24 | ||
| ZM | 3/5 | $460P | 2/26 | 3/1 | $28,078.99 | ($21.312.86) | $6766.13 | ||
| +$5393.54 |
2/26/2021
The point of posting this example trade has been to demonstrate how I make decisions on selecting a trade (i.e. undervalued stock with a near term catalyst to help prop up the share price going into that catalyst event). The mechanics of selecting the strike prices and deciding how and when to roll the options forward should have been instructive (if you look back over the past several weeks of trading). One can see how rolling forward weekly and to the current strike price allows a trader to milk the time value and also minimize the losses of the losing straddle leg by selling time in exchange for additional premium. The trades that I made over the past several weeks show how the trade makes money when the shares are not moving or moving up. Unfortunately for me (but good for your learning), the past week has shown how the trade can lose money if the share price drops precipitously; the gains accumulated over several weeks were quickly wiped out by a fast plunge in ZM shares. Note, that a fast plunge is very bad for this type of trade while a slow decline in the share price is not very harmful. The trades that I made on 2/23/2021 were reactionary and were not optimal. I think I could have been better off not making any trades on that day. I hope that those trades did not confuse the readers of this post.
My intention was to close this trade out prior to the 1Mar earnings result. The reason was that I wanted to avoid the risk of holding the options positions through the catalyst event. I did take further action today, which I will explain below, but I want to also explain the three available choices for today’s action.
Choice #1: Close out all the positions prior to 26Feb expiration
This is the choice to make if one doesn’t want to bet on the earnings result and one doesn’t want to risk that the ZM share will fall further on Monday, March 1st (prior to the earnings result becomes known). There are four options positions set to expire today:
- -3 contracts 26Feb $355Cs
- -3 contracts 26Feb $420Cs
- -3 contracts 26Feb $380Ps
- -3 contracts 26 Feb $460Ps
With the shares trading at around $370, it’s safe to assume that the 26Feb $420Cs will expire worthless. This will result in a net realized gain of $3848.05.
The 26Feb $380Ps will need to be Bought to Close. The cost to close these would be $10.30/sh for a total cost of $3090.86. This will result in a net realized loss of $376.78.
The 26Feb $355Cs and the 26Feb $460Ps will be automatically closed through assignments so no action is required. This will result in the sale of 300 ZM shares for $355/share and the purchase of 300 shares for $460/share. The strike price difference of $105 multiplied by 300 shares results in a loss of $31,500. However, this loss is offset by the premiums the were previously collected for selling these options. The 26Feb $355Cs netted $3449.06, and the 26Feb $460Ps netted $12,358.87. These combined net premiums reduce the net realized loss from $31,500 to $15,692.07.
Going into today, we had net realized gains of $10,802.45. After adding and subtracting today’s realized gains and losses we ended this ongoing trade with a net loss of $1418.35. In hindsight, one mistake was selling the $355Cs on 2/23/2021.
Choice #2a: Roll the straddles and the deep IRM puts forward (close on Monday)
This choice keeps the trade going by rolling the 26Feb $355Cs and the 26Feb $380Ps to 5Mar $370 ATM straddles and rolling the 26Feb $460Ps forward to 5Mar. If the intention is to close down the trade prior to earnings, then this can still be done on Monday, March 1st prior to the market close (and prior to the ZM earnings report is released). This is basically a bet that ZM shares will rise on Monday going into earnings. If the shares fall on Monday, the losses will be increased, particularly since there are two short puts for every short call.
Choice #2b: Roll the straddles and the deep IRM puts forward (hold through earnings)
With this choice, today’s trades are identical to those in choice #2a above. The difference is that the intention is to keep the trade going if ZM shares fall on Monday. The reason is that if ZM shares were undervalued when the shares were at $375 when the trade was first initiated on 21Jan then they are still undervalued as the share price is now slightly lower. This trade is a bet on earnings. However, with the uncertainty of the earnings result looming, the premiums for selling an ATM straddle has spiked up to 13.4% of the share price with 7 days until expiration. In other words, the straddle portion of the trade provides protection between $370 +/- $49.60. The biggest risk to holding this trade through earnings is that the shares drop significantly. The other risk is that the shares rise above $460 after earnings. The short $460Ps only provide protection up to $460; if ZM share somehow blow past $460 then the $370Cs start to accumulate losses; however, the $49.60 in premiums received for selling the 5Mar $370 straddle provide a buffer to absorb these losses.
My actual trades
I opted for choice #2b, although I may close the trade out on Monday if ZM shares rise moderately prior to earnings. When ZM shares were trading at around $369, I rolled forward the 26Feb $460 puts to the 5Mar $460 puts using a limit order which filled for a $3.00/share credit. Separately, using limit order combination trades for the 26Feb $380 puts and then for the 26Feb $355 calls, I rolled to 5Mar $370 straddles. The puts executed for a net credit of $14.50/share, and the calls executed for a net credit of $9.95/share. Note that the puts were rolled down $15 while the calls were rolled up $10. The 26Feb $420Cs expired worthless.
- Buy to Close 3 contracts ZM 26Feb $460P: executed for $90.60/share debit
- Sell to Open 3 contracts ZM 5Mar $460P: executed for $93.60/share credit
- Buy to Close 3 contracts ZM 26Feb $380P: executed for $10.30/share debit
- Sell to Open 3 contracts ZM 5Mar $370P: executed for $24.80/share credit
- Buy to Close 3 contracts ZM 26Feb $355C: executed for $14.85/share debit
- Sell to Open 3 contracts ZM 5Mar $370C: executed for $24.80/share credit
The 26Feb $460Ps were closed for a cost of $27,180.86 and a realized loss of $14,821.99. The 5Mar $460Ps were sold for a premium of $28,078.99. The 26Feb $380Ps were closed for a cost of $3090.86 and a realized loss of $376.78. The 5Mar $370Ps were sold for a premium of $7439.10. The 26Feb $355Cs were closed for a cost of $4455.86 and a realized loss of $1006.80. The 5Mar $370Cs were sold for a premium of $7439.10. The 26Feb $420Cs expired worthless for a realized gain of $3848.05.
Positions remaining open
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 3/5/21 | $370C | $24.80 | $0.90 | -3 | $7439.10 | ||
| ZM | 3/5/21 | $370P | $24.80 | $0.90 | -3 | $7439.10 | ||
| ZM | 3/5/21 | $460P | $93.60 | $1.01 | -3 | $28,078.99 |
Table of cumulative realized gains/losses
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| ZM | 2/5 | $375C | 1/29 | 2/4 | $2819.07 | ($4386.86) | ($1567.69) | ||
| ZM | 2/5 | $375P | 1/29 | 2/4 | $4289.03 | ($240.86) | $4048.17 | ||
| ZM | 2/5 | $425P | 1/27 | 2/5 | $14,218.82 | ($10,869.86) | $3348.97 | ||
| ZM | 2/5 | $390C | 2/4 | 2/5 | $1244.11 | ($6015.86) | ($4771.75) | ||
| ZM | 2/5 | $390P | 2/4 | 2/5 | $1589.09 | $0.00 | $1589.09 | ||
| ZM | 2/12 | $410P | 2/5 | 2/9 | $4259.03 | ($1521.86) | $2738.17 | ||
| ZM | 2/12 | $410C | 2/4 | 2/11 | $4262.03 | ($8589.86) | ($4327.83) | ||
| ZM | 2/12 | $425P | 2/4 | 2/11 | $11,653.88 | ($795.86) | $10,858.02 | ||
| ZM | 2/12 | $440C | 2/11 | 2/12 | $2138.09 | ($69.11) | $2068.98 | ||
| ZM | 2/12 | $440P | 2/11 | 2/12 | $2744.04 | ($2910.85) | ($166.81) | ||
| ZM | 2/19 | $460P | 2/9 | 2/18 | $12,949.85 | $11,370.86 | $1578.99 | ||
| ZM | 2/19 | $430C | 2/12 | 2/19 | $3698.06 | ($69.11) | $3628.95 | ||
| ZM | 2/19 | $430P | 2/12 | 2/19 | $3419.06 | ($3180.87) | $238.19 | ||
| ZM | 2/26 | $420P | 2/19 | 2/23 | $3899.04 | ($19,530.86) | ($15,631.82) | ||
| ZM | 2/26 | $355P | 2/23 | 2/23 | $3479.06 | ($615.86) | $2863.20 | ||
| ZM | 2/26 | $420C | 2/19 | 2/26 | $3848.05 | $0.00 | $3848.05 | ||
| ZM | 2/26 | $380P | 2/23 | 2/26 | $2714.08 | ($3090.86) | ($376.78) | ||
| ZM | 2/26 | $355C | 2/23 | 2/26 | $3449.06 | ($4455.86) | ($1006.80) | ||
| ZM | 2/26 | $460P | 2/18 | 2/26 | $12,358.87 | ($27,180.86) | ($14,821.99) | ||
| -$1555.07 |
2/23/2021 (second trade)
ZM shares have rebounded sharply so I decided to roll up the 26Feb $355Ps to 26Feb $380Ps for a credit. I do not know where ZM shares will go from here in the next few days; if the shares fall back down then this trade will not be a good one. At about 2:25pm EST when ZM shares were trading at about $380, I entered a combination trade limit order that filled for a net credit of $7.00.
- Buy to Close 3 contracts ZM 26Feb $355P: executed for $2.05/share debit
- Sell to Open 3 contracts ZM 26Feb $380P: executed for $9.05/share credit
The 26Feb $355Ps were closed for a cost of $615.86 and a realized gain of $2863.20. The 26Feb $380Ps were sold for net proceeds of $2714.08.
Positions remaining open
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 2/26/21 | $355C | $11.50 | $0.94 | -3 | $3449.06 | ||
| ZM | 2/26/21 | $420C | $12.83 | $0.95 | -3 | $3848.05 | ||
| ZM | 2/26/21 | $380P | $9.05 | $0.92 | -3 | $2714.08 | ||
| ZM | 2/26/21 | $460P | $41.20 | $1.13 | -3 | $12,358.87 |
Table of cumulative realized gains/losses
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| ZM | 2/5 | $375C | 1/29 | 2/4 | $2819.07 | ($4386.86) | ($1567.69) | ||
| ZM | 2/5 | $375P | 1/29 | 2/4 | $4289.03 | ($240.86) | $4048.17 | ||
| ZM | 2/5 | $425P | 1/27 | 2/5 | $14,218.82 | ($10,869.86) | $3348.97 | ||
| ZM | 2/5 | $390C | 2/4 | 2/5 | $1244.11 | ($6015.86) | ($4771.75) | ||
| ZM | 2/5 | $390P | 2/4 | 2/5 | $1589.09 | $0.00 | $1589.09 | ||
| ZM | 2/12 | $410P | 2/5 | 2/9 | $4259.03 | ($1521.86) | $2738.17 | ||
| ZM | 2/12 | $410C | 2/4 | 2/11 | $4262.03 | ($8589.86) | ($4327.83) | ||
| ZM | 2/12 | $425P | 2/4 | 2/11 | $11,653.88 | ($795.86) | $10,858.02 | ||
| ZM | 2/12 | $440C | 2/11 | 2/12 | $2138.09 | ($69.11) | $2068.98 | ||
| ZM | 2/12 | $440P | 2/11 | 2/12 | $2744.04 | ($2910.85) | ($166.81) | ||
| ZM | 2/19 | $460P | 2/9 | 2/18 | $12,949.85 | $11,370.86 | $1578.99 | ||
| ZM | 2/19 | $430C | 2/12 | 2/19 | $3698.06 | ($69.11) | $3628.95 | ||
| ZM | 2/19 | $430P | 2/12 | 2/19 | $3419.06 | ($3180.87) | $238.19 | ||
| ZM | 2/26 | $420P | 2/19 | 2/23 | $3899.04 | ($19,530.86) | ($15,631.82) | ||
| ZM | 2/26 | $355P | 2/23 | 2/23 | $3479.06 | ($615.86) | $2863.20 | ||
| +$10,802.45 |
2/23/2021
We seem to be at the start of a sector rotation. We don’t know if this will continue or reverse. ZM shares have sold down significantly the last two day. I can’t know if shares will continue to fall in the short term. The biggest risk of this ongoing trade is that the shares fall significantly. Unfortunately, the earnings release date is next Monday, and I did not want to hold this trade through earnings. Therefore, there is a chance that this trade may end up losing money overall. It’s a good lesson to be prudent in sizing the trade appropriately for if shares fall significantly the 2x quantity of short puts leads to losses.
The morning, shortly after the market opened, ZM shares were trading at a little below $355. That’s down 15.5% from last Friday’s short straddle sale. I now believe that ZM shares will not recover to $420 by 26Feb. I decided to roll down the 26Feb $420 puts to the 26Feb $355 puts. I also decided to sell the 26Feb $355 calls without closing the 26Feb $420 calls, which I believe will almost certainly expire worthless. These trades lock in a loss from the 26Feb $420 puts but also add some additional premiums to offset losses should ZM shares continue to fall.
At around 9:50am EST when ZM shares were at about $354, a limit order to roll the 26Feb $420 puts down to 26Feb $355 puts executed for a net debit of $53.50/share. Next, I entered a limit order to Sell to Open the 26Feb $355 calls; this trade executed for $11.50/share.
- Buy to Close 3 contracts ZM 26Feb $420P: executed for $65.10/share debit
- Sell to Open 3 contracts ZM 26Feb $355P: executed for $11.60/share credit
- Sell to Open 3 contracts ZM 26Feb $355C: executed for $11.50/share credit
The 26Feb $420Ps were closed for a cost of $19,530.86 and a realized loss of $15,631.82. The 26Feb $355Ps were sold for net proceeds of $3479.06. The 26Feb $355Cs were sold for net proceeds of $3449.06.
Positions remaining open
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 2/26/21 | $355C | $11.50 | $0.94 | -3 | $3449.06 | ||
| ZM | 2/26/21 | $420C | $12.83 | $0.95 | -3 | $3848.05 | ||
| ZM | 2/26/21 | $355P | $11.60 | $0.94 | -3 | $3479.06 | ||
| ZM | 2/26/21 | $460P | $41.20 | $1.13 | -3 | $12,358.87 |
Table of cumulative realized gains/losses
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| ZM | 2/5 | $375C | 1/29 | 2/4 | $2819.07 | ($4386.86) | ($1567.69) | ||
| ZM | 2/5 | $375P | 1/29 | 2/4 | $4289.03 | ($240.86) | $4048.17 | ||
| ZM | 2/5 | $425P | 1/27 | 2/5 | $14,218.82 | ($10,869.86) | $3348.97 | ||
| ZM | 2/5 | $390C | 2/4 | 2/5 | $1244.11 | ($6015.86) | ($4771.75) | ||
| ZM | 2/5 | $390P | 2/4 | 2/5 | $1589.09 | $0.00 | $1589.09 | ||
| ZM | 2/12 | $410P | 2/5 | 2/9 | $4259.03 | ($1521.86) | $2738.17 | ||
| ZM | 2/12 | $410C | 2/4 | 2/11 | $4262.03 | ($8589.86) | ($4327.83) | ||
| ZM | 2/12 | $425P | 2/4 | 2/11 | $11,653.88 | ($795.86) | $10,858.02 | ||
| ZM | 2/12 | $440C | 2/11 | 2/12 | $2138.09 | ($69.11) | $2068.98 | ||
| ZM | 2/12 | $440P | 2/11 | 2/12 | $2744.04 | ($2910.85) | ($166.81) | ||
| ZM | 2/19 | $460P | 2/9 | 2/18 | $12,949.85 | $11,370.86 | $1578.99 | ||
| ZM | 2/19 | $430C | 2/12 | 2/19 | $3698.06 | ($69.11) | $3628.95 | ||
| ZM | 2/19 | $430P | 2/12 | 2/19 | $3419.06 | ($3180.87) | $238.19 | ||
| ZM | 2/26 | $420P | 2/19 | 2/23 | $3899.04 | ($19,530.86) | ($15,631.82) | ||
| +$7939.25 |
2/19/2021
With ZM shares trading at around $420/share, I decided to roll the short 19Feb $430 straddle down to $420 and forward to 26Feb. ZM will be reporting their 31Jan quarter results on 1Mar. I will be exiting this trade next week because I do not want to bet on the earnings result with six open short put contracts. I am continuing the trade today because I still believe that the shares are undervalued. In addition, I believe that it’s likely that the upcoming earnings announcement will help support the share price going into earnings. I executed the following combination trades with limit orders at about 10:52am EST when ZM shares were trading at around $420/share. The puts were rolled down from $430 to $420 and forward one week from 19Feb to 26Feb using a combination limit order and executed for a net credit of $2.40/share. Next, the calls were rolled down from $430 to $420 and forward one week from 19Feb to 26Feb using a combination limit order and executed for a net credit of $12.60/share.
- Buy to Close 3 contracts ZM 19Feb $430P: executed for $10.60/share debit
- Sell to Open 3 contracts ZM 26Feb $420P: executed for $13.00/share credit
- Buy to Close 3 contracts ZM 19Feb $430C: executed for $0.23/share debit
- Sell to Open 3 contracts ZM 26Feb $420C: executed for $12.83/share credit
The 19Feb $430Ps were closed for a cost of $3180.87 and a realized gain of $238.19. The 26Feb $420Ps were sold for net proceeds of $3899.04. The 19Feb $430Cs were closed for a cost of $69.11 and a realized gain of $3628.95. The 26Feb $420Cs were sold for net proceeds of $3848.05.
Positions remaining open
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 2/26/21 | $420C | $12.83 | $0.95 | -3 | $3848.05 | ||
| ZM | 2/26/21 | $420P | $13.00 | $0.96 | -3 | $3899.04 | ||
| ZM | 2/26/21 | $460P | $41.20 | $1.13 | -3 | $12,358.87 |
Table of cumulative realized gains/losses
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| ZM | 2/5 | $375C | 1/29 | 2/4 | $2819.07 | ($4386.86) | ($1567.69) | ||
| ZM | 2/5 | $375P | 1/29 | 2/4 | $4289.03 | ($240.86) | $4048.17 | ||
| ZM | 2/5 | $425P | 1/27 | 2/5 | $14,218.82 | ($10,869.86) | $3348.97 | ||
| ZM | 2/5 | $390C | 2/4 | 2/5 | $1244.11 | ($6015.86) | ($4771.75) | ||
| ZM | 2/5 | $390P | 2/4 | 2/5 | $1589.09 | $0.00 | $1589.09 | ||
| ZM | 2/12 | $410P | 2/5 | 2/9 | $4259.03 | ($1521.86) | $2738.17 | ||
| ZM | 2/12 | $410C | 2/4 | 2/11 | $4262.03 | ($8589.86) | ($4327.83) | ||
| ZM | 2/12 | $425P | 2/4 | 2/11 | $11,653.88 | ($795.86) | $10,858.02 | ||
| ZM | 2/12 | $440C | 2/11 | 2/12 | $2138.09 | ($69.11) | $2068.98 | ||
| ZM | 2/12 | $440P | 2/11 | 2/12 | $2744.04 | ($2910.85) | ($166.81) | ||
| ZM | 2/19 | $460P | 2/9 | 2/18 | $12,949.85 | $11,370.86 | $1578.99 | ||
| ZM | 2/19 | $430C | 2/12 | 2/19 | $3698.06 | ($69.11) | $3628.95 | ||
| ZM | 2/19 | $430P | 2/12 | 2/19 | $3419.06 | ($3180.87) | $238.19 | ||
| +$23,571.07 |
2/18/2021
Today, I rolled the short deep ITM puts forward one week when ZM shares were trading at around $423/share. I saw little benefit in waiting one more day until expiration. Rolling the option forward today reduces the chance of an early assignment of shares from the 19Feb $460 puts. I entered the trade as a net credit limit order for a $3.60/share credit. When the trade did not fill, I kept lowering my limit credit until the trade filled for a net credit of $3.30/share. The trade filled at about 2:25pm EST. The details are below:
- Buy to Close 3 contracts ZM 19Feb $460P: executed for $41.20/share debit
- Sell to Open 3 contracts ZM 26Feb $460P: executed for $37.90/share credit
The 19Feb $460Ps were closed for a cost of $11,370.86 and a realized gain of $1578.99. The 26Feb $460Ps were sold for net proceeds of $12,358.87.
Positions remaining open
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 2/19/21 | $430C | $12.33 | $0.94 | -3 | $3698.06 | ||
| ZM | 2/19/21 | $430P | $11.40 | $0.94 | -3 | $3419.06 | ||
| ZM | 2/26/21 | $460P | $41.20 | $1.13 | -3 | $12,358.87 |
Table of cumulative realized gains/losses
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| ZM | 2/5 | $375C | 1/29 | 2/4 | $2819.07 | ($4386.86) | ($1567.69) | ||
| ZM | 2/5 | $375P | 1/29 | 2/4 | $4289.03 | ($240.86) | $4048.17 | ||
| ZM | 2/5 | $425P | 1/27 | 2/5 | $14,218.82 | ($10,869.86) | $3348.97 | ||
| ZM | 2/5 | $390C | 2/4 | 2/5 | $1244.11 | ($6015.86) | ($4771.75) | ||
| ZM | 2/5 | $390P | 2/4 | 2/5 | $1589.09 | $0.00 | $1589.09 | ||
| ZM | 2/12 | $410P | 2/5 | 2/9 | $4259.03 | ($1521.86) | $2738.17 | ||
| ZM | 2/12 | $410C | 2/4 | 2/11 | $4262.03 | ($8589.86) | ($4327.83) | ||
| ZM | 2/12 | $425P | 2/4 | 2/11 | $11,653.88 | ($795.86) | $10,858.02 | ||
| ZM | 2/12 | $440C | 2/11 | 2/12 | $2138.09 | ($69.11) | $2068.98 | ||
| ZM | 2/12 | $440P | 2/11 | 2/12 | $2744.04 | ($2910.85) | ($166.81) | ||
| ZM | 2/19 | $460P | 2/9 | 2/18 | $12,949.85 | $11,370.86 | $1578.99 | ||
| +$19,703.93 |
2/12/2021
With ZM shares below $440, I decided to continue this trade for another week. If the share get near $450, I will consider shutting the trade down. The action that I took today was to roll the 12Feb $440 straddles down $10 and forward to 19Feb $430 straddles. The $430 strike prices were the closest available to the ZM price of $431 at the time of the trades.
Shortly after 1:30pm EST when ZM shares were at about $431, I entered a limit order for a combination trade to Buy to Close the 12Feb $440Ps and Sell to Open 19Feb $430Ps. Next, I entered a limit order for a combination trade to Buy to Close the 12Feb $440Cs and Sell to Open the 19Feb $430Cs. The trades were executed as follows.
- Buy to Close 3 contracts ZM 12Feb $440P: executed for $9.70/share debit
- Sell to Open 3 contracts ZM 19Feb $430P: executed for $11.40/share credit
- Buy to Close 3 contracts ZM 12Feb $440C: executed for $0.23/share debit
- Sell to Open 3 contracts ZM 19Feb $430C: executed for $12.33/share credit
The put trade resulted in a net credit of $1.70/share, and the call trade resulted in a net credit of $12.10/share. The 12Feb $440Cs were closed for a cost of $69.11 and a realized gain of $2068.98. The 12Feb $440Ps were closed for a cost of $2910.85 and a realized loss of $166.81. The sale of the 19Feb $430Cs collected premiums of $3698.06, and the sale of the 19Feb $430Ps collected premiums of $3419.06.
Positions remaining open
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 2/19/21 | $430C | $12.33 | $0.94 | -3 | $3698.06 | ||
| ZM | 2/19/21 | $430P | $11.40 | $0.94 | -3 | $3419.06 | ||
| ZM | 2/19/21 | $460P | $43.17 | $1.15 | -3 | $12,949.85 |
Table of cumulative realized gains/losses
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| ZM | 2/5 | $375C | 1/29 | 2/4 | $2819.07 | ($4386.86) | ($1567.69) | ||
| ZM | 2/5 | $375P | 1/29 | 2/4 | $4289.03 | ($240.86) | $4048.17 | ||
| ZM | 2/5 | $425P | 1/27 | 2/5 | $14,218.82 | ($10,869.86) | $3348.97 | ||
| ZM | 2/5 | $390C | 2/4 | 2/5 | $1244.11 | ($6015.86) | ($4771.75) | ||
| ZM | 2/5 | $390P | 2/4 | 2/5 | $1589.09 | $0.00 | $1589.09 | ||
| ZM | 2/12 | $410P | 2/5 | 2/9 | $4259.03 | ($1521.86) | $2738.17 | ||
| ZM | 2/12 | $410C | 2/4 | 2/11 | $4262.03 | ($8589.86) | ($4327.83) | ||
| ZM | 2/12 | $425P | 2/4 | 2/11 | $11,653.88 | ($795.86) | $10,858.02 | ||
| ZM | 2/12 | $440C | 2/11 | 2/12 | $2138.09 | ($69.11) | $2068.98 | ||
| ZM | 2/12 | $440P | 2/11 | 2/12 | $2744.04 | ($2910.85) | ($166.81) | ||
| +$18,124.94 |
2/11/2021
I took more action this morning to harvest more time value with one day before the 12Feb expiration. There were two option legs set to expire tomorrow on 12Feb: 12Feb $410Cs and 12Feb $425Ps. The action is to move both strike prices to $440 (which is ATM) but still keep the expiration dates at 12Feb.
When the shares were at about $440, I rolled the 12Feb $410Cs to 12Feb $440C using a limit order. Next, I rolled the 12Feb $425Ps to 12Feb $440Ps when then shares were at about $438 using a limit order. The trades were executed as follows.
- Buy to Close 3 contracts ZM 12Feb $410C: executed for $28.63/share debit
- Sell to Open 3 contracts ZM 12Feb $440C: executed for $7.13/share credit
- Buy to Close 3 contracts ZM 12Feb $425P: executed for $2.65/share debit
- Sell to Open 3 contracts ZM 12Feb $440P: executed for $9.15/share credit
The 12Feb $410Cs were closed for a cost of $8589.86 and a realized loss of $4327.83. The 12Feb $440Cs were sold for net proceeds of $2138.09; these options expire tomorrow and will be closed then. The 12Feb $425Ps were closed for a cost of $795.86 and a net realized gain of $10,858.02. The 12Feb $440Ps were sold for net proceeds of $2744.05; these options expire tomorrow and will be closed then.
ZM shares are starting to get near a price where I’m inclined to shut the trade down. I’ll decide tomorrow whether to keep it going for another week or shut it down.
Positions remaining open
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 2/12/21 | $440C | $7.13 | $0.91 | -3 | $2138.09 | ||
| ZM | 2/12/21 | $440P | $9.15 | $0.95 | -3 | $2744.05 | ||
| ZM | 2/19/21 | $460P | $43.17 | $1.15 | -3 | $12,949.85 |
Table of cumulative realized gains/losses
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| ZM | 2/5 | $375C | 1/29 | 2/4 | $2819.07 | ($4386.86) | ($1567.69) | ||
| ZM | 2/5 | $375P | 1/29 | 2/4 | $4289.03 | ($240.86) | $4048.17 | ||
| ZM | 2/5 | $425P | 1/27 | 2/5 | $14,218.82 | ($10,869.86) | $3348.97 | ||
| ZM | 2/5 | $390C | 2/4 | 2/5 | $1244.11 | ($6015.86) | ($4771.75) | ||
| ZM | 2/5 | $390P | 2/4 | 2/5 | $1589.09 | $0.00 | $1589.09 | ||
| ZM | 2/12 | $410P | 2/5 | 2/9 | $4259.03 | ($1521.86) | $2738.17 | ||
| ZM | 2/12 | $410C | 2/4 | 2/11 | $4262.03 | ($8589.86) | ($4327.83) | ||
| ZM | 2/12 | $425P | 2/4 | 2/11 | $11,653.88 | ($795.86) | $10,858.02 | ||
| +$16,222.77 |
2/9/2021
Today at about 2pm EST, I took further action. ZM shares were trading at about $422 per share and, thus, were getting very close to the strike price of the 12Feb $425 puts which serve to offset losses from the short calls of the straddle. If ZM shares were to rise above $425, then the short $425 puts would no longer protect against losses from the 12Feb $410 calls. Therefore, I want to increase the strike price of the short deep ITM puts.
Rather than buying to close the 12Feb $425 puts, which have significant time value because the ZM share are close to the strike price, it is better to instead buy to close the 12Feb $410 puts. The still open short 12Feb $425 puts will be rolled forward to the new ATM price later this week.
I executed the following trades when ZM shares were at about $422. The trade was executed as a combination trade using a limit order for a credit of $38.10/share.
- Buy to Close 3 contracts ZM 12Feb $410P: executed for $5.07/share debit
- Sell to Open 3 contracts ZM 19Feb $460P: executed for $43.17/share credit
Closing the 12Feb $410 puts at a cost of $1521.86 resulted in a net realized gain of $2738.17. The sale of the 19Feb $460 puts collected net proceeds of $12,949.85. These puts will offset losses from the short calls up to a ZM price of $460 (about a 10% ZM share price increase). Note: I sold the$460Ps with an expiration date of 19Feb (not 12Feb).
Positions remaining open
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 2/12/21 | $410C | $14.21 | $0.97 | -3 | $4262.03 | ||
| ZM | 2/12/21 | $425P | $38.85 | $1.12 | -3 | $11,653.88 | ||
| ZM | 2/19/21 | $460P | $43.17 | $1.15 | -3 | $12,949.85 |
Table of cumulative realized gains/losses
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| ZM | 2/5 | $375C | 1/29 | 2/4 | $2819.07 | ($4386.86) | ($1567.69) | ||
| ZM | 2/5 | $375P | 1/29 | 2/4 | $4289.03 | ($240.86) | $4048.17 | ||
| ZM | 2/5 | $425P | 1/27 | 2/5 | $14,218.82 | ($10,869.86) | $3348.97 | ||
| ZM | 2/5 | $390C | 2/4 | 2/5 | $1244.11 | ($6015.86) | ($4771.75) | ||
| ZM | 2/5 | $390P | 2/4 | 2/5 | $1589.09 | $0.00 | $1589.09 | ||
| ZM | 2/12 | $410P | 2/5 | 2/9 | $4259.03 | ($1521.86) | $2738.17 | ||
| +$9692.58 |
2/5/2021
Well, I wasn’t expecting ZM shares to shoot up 5.5% from about $390 to about $410. Yesterday, I had rolled up the 5Feb $375 straddle to the 5Feb $390 straddle knowing that I would need to again take action on the straddle today. The action today was to roll the straddle forward one week to 12Feb. The higher the ZM shares go, the less undervalued the shares are. Therefore, the trade gets less attractive and less safe as the shares rise. Thus, I need to decide each week whether I want to continue the trade or shut it down. Today, I decided that I want to keep the trade going perhaps until ZM shares get to around $450.
I would have preferred to wait until later in the trading day to roll the straddle forward, but I don’t have time today to closely watch the ZM share price. However, the shares have moved up so much since yesterday that the time value on the $390 straddle is virtually gone.
I executed the trades today at about 10:45am EST (with 5 hours and 15 minutes remaining before market close). ZM shares were trading around $410 so I will set the new 12Feb short straddle at a strike price of $410. I executed the call legs first by placing a limit order. I decided to leave the 5Feb $390Ps open and let them expire worthless because I am betting that ZM shares won’t close below $390 today; I am risking an assignment of 300 shares if I am wrong about this. I executed the Sell to Open order of the $410P contracts separately with a limit order. The trades were executed as follows:
- Buy to Close 3 contracts ZM 5Feb $390C: executed for $20.05/share debit
- Sell to Open 3 contracts ZM 12Feb $410C: executed for $14.21/share credit
- Sell to Open 3 contracts ZM 12Feb $410P: executed for $14.20/share credit
Rolling the 5Feb $390Cs up and forward to the 12Feb $410Cs resulted in a net debit of $5.47/share (with a total cost to close the $390Cs of $6015.06) and a realized loss of $4771.75 on the 5Feb $390Cs. Note that the $20/share increase in ZM from $390 to $410 only cost me a $5.47 loss from the calls while I’m getting the full benefit of the $20 gain on the $425 short puts (still unrealized because the short $425Ps are still open). I will assume that the 5Feb $390Ps will expire worthless today for a realized gain of $1589.09.
ZM shares have now risen to $410 so there is a risk that the shares could shoot above $425. From $410 to $425, ZM shares would only need to rise 3.7% to reach the $425 strike price of the short “deep” ITM puts. I will need to watch this carefully on Monday (and may need to sell a higher strike deep ITM put for adequate protection against losses on the $410Cs).
Positions remaining open
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 2/12/21 | $410C | $14.21 | $0.97 | -3 | $4262.03 | ||
| ZM | 2/12/21 | $410P | $14.20 | $0.97 | -3 | $4259.03 | ||
| ZM | 2/12/21 | $425P | $38.85 | $1.12 | -3 | $11,653.88 |
Table of cumulative realized gains/losses
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| ZM | 2/5 | $375C | 1/29 | 2/4 | $2819.07 | ($4386.86) | ($1567.69) | ||
| ZM | 2/5 | $375P | 1/29 | 2/4 | $4289.03 | ($240.86) | $4048.17 | ||
| ZM | 2/5 | $425P | 1/27 | 2/5 | $14,218.82 | ($10,869.86) | $3348.97 | ||
| ZM | 2/5 | $390C | 2/4 | 2/5 | $1244.11 | ($6015.86) | ($4771.75) | ||
| ZM | 2/5 | $390P | 2/4 | 2/5 | $1589.09 | $0.00 | $1589.09 | ||
| +$6954.41 |
2/4/2021
Today, there were three options legs open with the 5Feb expiration date which is one day away. These options were the short ZM 5Feb $375 straddle (both calls and puts) and the short ZM 5Feb $425 puts. ZM shares were trading at around $389 when I checked about midway through the trading day. I continue to think that ZM is fairly valued to undervalued, and I decided to continue on with the trade. I also decided to take some action today rather than waiting one more day until the expiration day. I’ll explain what I did and why below.
Rolling the 5Feb $425P to 12Feb $425P
I decided to roll the 5Feb $425P forward one week to 12Feb $425P. First, the shares were far from the strike price, and I did not think it likely that the shares would run up near $425 in one day. Second, with deep ITM puts there is always a chance for an early exercise which would result in a share assignment; assignments are not a big problem but are a hassle: need to sell the assigned shares and then resell the puts. Third, being deep in-the-money, the puts have very little time value so there’s hardly any benefit to waiting one more day.
When the shares were around $389, I placed a limit order trade for a net credit of $2.60/share. The trade executed as follows:
- Buy to Close 3 ZM 5Feb $425P: executed for $36.23 debit
- Sell to Open 3 ZM 12Feb $425P: executed for $38.85 credit
The trade resulted in a net credit of $2.62/share (including a 2 cent price improvement over my limit order). The closed three contracts of ZM 5Feb $425P cost $10,869.86 to close and resulted in a realized profit of $3348.97. The three new contracts of ZM 12Feb $425P provided net proceeds of $11,653.88.
Rolling the 5Feb $375 straddle to a 5Feb $390 straddle
The open 5Feb straddle has a strike price of $375 which is about $14 away from the current price of about $389. Because the open straddle has very little time value remaining and the ZM share price had drifted away from the strike price of the straddle, I decided to take an opportunity to roll the options to a new strike of $390; the $390 strike price would provide some time value to harvest over the remaining day until expiration. Thus, I will be closing the $375 straddle and selling a new $390 straddle which is the closest price to the current price of about $389. Recall that time value is maximized when the strike price is closest to the current price. Instead of rolling forward to the 12Feb expiration date, I will keep the expiration date of the new $390 straddle at 5Feb. I will wait one more day to roll the new straddle forward to 12Feb so that I can harvest the time value of the 5Feb straddle.
I first executed the put options as a combination trade with a net credit limit order. Next, I executed the call options as a combination trade with a net debit limit order. The trades were executed as follows:
- Buy to Close 3 contracts ZM 5Feb $375P: executed for a debit of $0.80/share
- Sell to Open 3 contracts ZM 5Feb $390P: executed for a credit of $5.30/share
- Buy to Close 3 contracts ZM 5Feb $375C: executed for debit of $14.62/share
- Sell to Open 3 contracts ZM 5Feb $390C: executed for credit of $4.15/share
The time value left on the $375 straddle options was only $1.42/share ($0.80/share on the puts + $0.62/share on the calls) while the time value on the $390 straddle options was $8.45/share ($4.30 on the puts because it was $1 ITM + $4.15/share on the calls). Most of this time value on the $390 straddle will decay over the next day. Tomorrow, I will need to roll the $390 straddle forward to 12Feb, but I will decide the new 12Feb straddle’s strike price depending on where the ZM shares are trading at the time.
The realized profits and losses for the closed 5Feb $375 straddle were as follows. The 5Feb $375Ps were bought back for $240.86 resulting in a realized gain of $4048.17. The 5Feb $375Cs were bought back for $4386.86 resulting in a realized loss of $1567.79. Note that while the ZM shares were about $14 higher than the strike price of the short $375 call options, the realized loss from this leg of the trade was only $5.23/share (much less than $14/share!). On the other hand, the gain from the short $375 put options was $13.49/share.
ZM earnings date announced: March 1 AMC
This week Zoom announced that they will report their 31Jan quarter after market close on Monday, March 1st. Provided that the conditions warrant continuing this ongoing trade, there are still three more weeks to continue the trade: expirations of 12Feb, 19Feb, and 26Feb. I anticipate that the premiums (as a percentage of the underlying price of ZM shares) for selling straddles may rise further as we get closer and closer to earnings. I will want to cease/shutdown the trade prior to March 1st because this trade is not a bet on the outcome of the ZM earnings results.
Positions remaining open
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 2/5/21 | $390C | $4.15 | $0.89 | -3 | $1244.11 | ||
| ZM | 2/5/21 | $390P | $5.30 | $0.91 | -3 | $1589.09 | ||
| ZM | 2/12/21 | $425P | $38.85 | $1.12 | -3 | $11,653.88 |
Table of cumulative realized gains/losses
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| ZM | 2/5 | $375C | 1/29 | 2/4 | $2819.07 | ($4386.86) | ($1567.69) | ||
| ZM | 2/5 | $375P | 1/29 | 2/4 | $4289.03 | ($240.86) | $4048.17 | ||
| ZM | 2/5 | $425P | 1/27 | 2/5 | $14,218.82 | ($10,869.86) | $3348.97 | ||
| +$10,137.07 |
1/29/2021
The options expiring today were the 29Jan $380 calls and the 29Jan $400 puts. I still think that ZM continues to be undervalued so I will continue with this ongoing trade. The actions to take are rolling the expiring options to ATM options expiring on 5Feb. Recall that ATM options give the most time value so it’s best to roll forward to the strikes that are closest to the money. As I’ll explain below, my actions today were not optimal, but they provide valuable lessons for what not to do.
At about 11am EST (5 hours until market close), I looked at rolling the options. ZM was trading at about $374. The actions to take should be to 1) Buy to Close the 29Jan $380 calls and Sell to Open the 5Feb $375 calls, and 2) Buy to Close the 29Jan $400 puts and Sell to Open the 5Feb $375 puts. The 29Jan $380 calls were $6 out-of-the-money, but they still had about $2 of time value. On the other hand, the 29Jan $400 puts were $24 in-the-money so they had virtually no time value remaining. The best action would be to wait a few hours to let most of the $2 time value on the 29Jan $380 calls decay, and then execute the trade closer to the market close. This would have maximized my premiums and my profits.
I decided to roll the puts and wait to roll the calls. There was clearly an advantage to waiting to roll the calls (to capture more time value decay), and there was no disadvantage to waiting to roll the puts. This was my trading mistake. There is a risk to not rolling the options at roughly the same time: the ZM share price can move up or down. If I roll the puts and not the calls, a ZM share price decrease will work against me while a ZM share price increase will work in my favor. The point of this ongoing trade is to harvest time value and not to speculate whether ZM shares will move up or down in a few hours.
At about 11am EST when ZM was at about $374, I executed the following combination trade: Buy to Close 29Jan $400 puts and Sell to Open 5Feb $375 puts for a net debit of $11.86/share. I lowered the strike price by $25 for a cost of only $11.86/share. The 29Jan $400 puts were closed for $26.16/share for a net realized profit of $2.54/share (less commissions). The 5Feb $375 puts were sold for $14.30/share; the premium received was higher than it was a week ago; the primary reason for a higher premium is that volatility has increased (it’s been a crazy week in the market).
Unfortunately for me, ZM shares declined after I rolled the puts. At about 1pm EST when ZM had dropped from $374 to $362, I decided to sell the 5Feb calls. I still decided to sell the $375 strike price because I still believe that ZM shares have a greater chance to rise than to fall. Instead of receiving about $12.40/share had I rolled at the same time as I rolled the puts, I would now receive about $3 less. The trade was Sell to Open 5Feb $375 calls which was executed for $9.40/share. I did not buy back the 29Jan $380 calls taking on the risk that ZM share could surge in the final hours of trading. Assuming that these 29Jan $380 calls will expire worthless, the resulting realized gain on the 29Jan $380 calls will be the entire premium of $3665.05 or $12.22/share.
The table below shows the positions that are still open.
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 2/5/21 | $375C | $9.40 | $0.93 | -3 | $2819.07 | ||
| ZM | 2/5/21 | $375P | $14.30 | $0.97 | -3 | $4289.03 | ||
| ZM | 2/5/21 | $425P | $47.40 | $1.18 | -3 | $14.218.82 |
The table below shows the realized gains/losses for all closed positions since the beginning of this ongoing trade. The bolded amount at the bottom is the cumulative net realized gain.
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| ZM | 1/29 | $400P | 1/21 | 1/29 | $8608.94 | ($7848.86) | $760.08 | ||
| ZM | 1/29 | $380C | 1/22 | 1/29 | $3665.05 | $0.00 | $3665.05 | ||
| +$4307.62 |
1/27/2021
On 1/25/21 I had increased the strike of the short deep ITM puts to $425. I don’t think ZM will get that high in the next two days so I decided to roll the short $425 puts forward. I executed the trade as a roll forward: Buy to Close 29Jan $425 puts and Sell to Open 5Feb $425 puts for a net credit of $3.20/share when ZM shares were trading at about $381. The realized loss on the 29Jan $425 puts was $3001.95; there was a loss because I had sold the 29Jan $425 puts when the shares were at about $394 (on Monday 1/25). Note: if there had been no credit available for today’s one week roll forward then I may have opted to roll forward two weeks instead of one week. There is always a chance that a deep ITM put can be exercised early which would lead to a share assignment in my account. I have noticed that when this happens it is common to happen one day before expiration. When that does happen, I just sell the assigned shares and then sell puts again. However, rolling on a Wednesday (when I don’t think the stock price will reach the deep ITM put strike price) may avoid a share assignment.
The table below shows the positions that are still open.
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 1/29/21 | $380C | $12.22 | $0.95 | -3 | $3665.05 | ||
| ZM | 1/29/21 | $400P | $28.70 | $1.06 | -3 | $8608.94 | ||
| ZM | 2/5/21 | $425P | $47.40 | $1.18 | -3 | $14.218.82 |
The table below shows the realized gains/losses for all closed positions since the beginning of this ongoing trade. The bolded amount at the bottom is the cumulative net realized gain.
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| ZM | 1/29 | $425P | 1/25 | 1/27 | $10,258.91 | ($13,260.86) | ($3001.95) | ||
| -$117.51 |
1/25/2021 (Update)
Shortly after I made the last trade, the market, SaaS stocks, and ZM dropped. I’ll wait to see what happens before taking further action.
1/25/2021
This morning ZM share rose to $395 +/- $2 which is uncomfortably close to $400 which is the strike price of the original deep ITM put (i.e. 29Jan $400 put) which protects the call leg of the short straddle from losses. If ZM rises above $400 then the deep ITM put would no longer offset losses from the short call. I still think ZM can rise so I will keep the trade going. Note: if I thought that ZM was getting frothy then I would just shut the whole trade down. The action that I want to take is raise the price of the deep ITM put to $425.
The problem is that the short 29Jan $400 put that was sold last week is now very close to the money so its time value has increased to about $7. On the other hand, the short $380 put, which is far out of the money, has less time value (about $5). Therefore, I will close out the short 29Jan $380 put and leave the short 29Jan $400 put in place. In essence, the 29Jan $400 put now becomes the put of the short straddle. The trade was executed as a combination trade when ZM shares were around $394: Buy to Close 29Jan $380 put and Sell to Open Jan29 $425 put for a net credit of $29.00. To cost close the 29Jan $380 put was $5.20/share, and the proceeds to open the short 29Jan $425 put was $34.20/share. While I had to pay $5.20 in time value to close the $380 put, I received $3.20 in time value for selling the $425 so I had to pay a net $2.00 in time value for this trade (this isn’t too bad). Now the new deep ITM put ($425) will protect against further losses on the $380 short call up to a ZM price of $425. I am more comfortable with a $31 buffer than a $6 buffer.
I’ll explain why I’m leaving the short 29Jan $380 call in place for now. The reason is that the cost to buy this call back was about $21 when ZM shares were at $394. The intrinsic value of the call was only $14 ($394 – $380) so I would have to pay $7 in time value to buy back this option. This time value will decay over the next four days so I will wait.
The table below shows the positions that are still open.
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 1/29/21 | $380C | $12.22 | $0.95 | -3 | $3665.05 | ||
| ZM | 1/29/21 | $400P | $28.70 | $1.06 | -3 | $8608.94 | ||
| ZM | 1/29/21 | $425P | $34.20 | $1.09 | -3 | $10,258.91 |
The table below shows the realized gains/losses for all closed positions since the beginning of this ongoing trade. The bolded amount at the bottom is the cumulative net realized gain.
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
| ZM | 1/29 | $380P | 1/22 | 1/25 | $3605.06 | ($1560.86) | $2044.20 | ||
| +$2884.44 |
1/22/2021
Today, I am continuing the trade that I initiated yesterday. The $375 short straddle expires today so it needs to be rolled forward to next week’s expiration. Early in the trading day ZM shares were trading at around $377, but there was still more than $2 of time value left on each leg of the straddle so I decided to wait a few hours to allow more time value to decay.
At around noon EST the shares of ZM were right at $380 and some of the time value had decayed. I decided to roll the straddle forward one week and up from $375 strikes to the $380 strikes; I find that selling the straddle as close to the money as possible yields the best overall premium.
I always use limit orders when trading options because the bid/ask spread can be wide. I rolled the calls of the straddle first by executing a Buy to Close of the 22Jan $375 calls with a Sell to Open of the 29Jan $380 calls for a net credit of $6.50/share. The trade executed by buying the 22Jan $375 calls for $5.72/share and selling the 29Jan $380 calls for $12.22/share. If you recall, I had sold the 22Jan $375 calls yesterday for $5.37/share so I realized a loss of $0.35/share. However, the gain from the 22Jan puts will more than offset the loss from the 22Jan calls (see below).
Right after rolling forward the calls, I rolled the 22Jan $375 puts to 29Jan $380 puts. Although the 22Jan $375 puts were out of the money and would expire worthless as long as ZM share close above $375, I closed the short puts because ZM shares could drop back below $375 with four hours left in the trading day. I rolled the puts of the straddle by executing a Buy to Close of the 22Jan $375 puts with a Sell to Open of the 29Jan $380 puts for a net credit of $11.45/share. The trade executed by buying the 22Jan $375 puts for $0.57/share and selling the 29Jan $380 puts for $12.02/share. If you recall, I had sold the 22Jan $375 puts yesterday for $3.73/share so I realized a gain of $3.16/share. Combining the loss from the 22Jan $375 calls with the gain from the 22Jan $375 puts yielded a net gain of $2.81/share. Not bad for one day.
The table below shows the positions that are still open.
| Exp Date | Option | Prem | Comm | # of Contracts | Net Proceeds | |||
| ZM | 1/29/21 | $380C | $12.22 | $0.95 | -3 | $3665.05 | ||
| ZM | 1/29/21 | $380P | $12.02 | $0.94 | -3 | $3605.06 | ||
| ZM | 1/29/21 | $400P | $28.70 | $1.06 | -3 | $8608.94 |
The table below shows the realized gains/losses since the beginning of this ongoing trade.
| Exp | Option | Open | Close | Proceeds | Cost | Net | |||
| ZM | 1/22 | $375C | 1/21 | 1/22 | $1610.10 | ($1718.76) | ($106.76) | ||
| ZM | 1/22 | $375P | 1/21 | 1/22 | $1118.11 | ($171.11) | $947.00 | ||
1/21/2021
The stock I decided to target for this trade is ZM. The reason for targeting ZM is based on my belief that the risk of a steep decline in the stock is small. The volatility is currently decent: with the stock at about $375, I can sell an ATM straddle expiring on 1/29/21 (in 8 days) for about $25 or 6.6%. Earnings for ZM are expected on or around March 3 which is about six weeks away. It is a bit earlier than I would like to start a trade based on an earnings catalyst, but I’m deciding to enter the trade early for the following reasons, which are just my personal opinion:
- Stock undervalued to fairly valued
- Stimulus from the federal government expected (support for stocks in general)
- Pandemic rages on (work from home stocks still working and for longer than expected)
- Some price support until the March earnings
My intention as of right now is to enter the trade today and continue to roll the options forward on a weekly basis until I decide that I want to exit the trade. I plan on exiting the trade prior to Q4 FY21 earnings which I expect will be around March 3 (the exact date of the earnings release has not yet been announced by ZM); this would give me a maximum of seven weeks of trading. I may decide to exit the trade even sooner if I see a good reason for doing so.
| Ticker | Exp Date | Option | Premium | Comm | # of Contracts | Net Proceeds | ||
| ZM | 1/22/21 | $375C | $5.37 | $0.90 | -3 | $1610.10 | ||
| ZM | 1/22/21 | $375P | $3.73 | $0.89 | -3 | $1118.11 | ||
| ZM | 1/29/21 | $400P | $28.70 | $1.06 | -3 | $8608.94 |
The above table shows the trades that I executed this morning. I sold three contracts each of the options indicated in the table. I sold the straddle first as a combination setting a limit price of $9.10/share credit. The price of ZM when I entered the trade was about $376 which is the reason that the premium received from the call leg of the straddle was higher than the premium of the put leg. This strike is the closest to the money that I could get. The combined premium was about 2.4% of the share price but with only one day until expiration. I could have received about $25 (or 6.6% of the price of the underlying stock) for selling the same straddle strike prices with a 1/29/21 expiration (eight days until expiration). I decided that it was better to collect the 2.4% for one day and then roll the straddle to 1/29/21 on 1/22/21 (tomorrow).
I sold the ITM put as a separate trade immediately after the short straddle trade executed. For this leg, I chose a strike price of $400. This is only 6.4% above the share price. I normally like to set the strike 10-20% above current price so I’m accepting some risk in the event that ZM shoots up above $400. In addition, I own enough shares of ZM as an investment (as opposed to a trade) to cover the short calls of the straddle. Ten percent above $376 would be a strike of $415. We’ll have to see how this decision to sell the $400 strike puts works out and how I adapt in the coming week. I selected the 1/29/21 expiration (and not the 1/22/21 expiration) because I don’t expect ZM to reach $400 in one day. I received $28.70 per share when the price of the shares were about $376 so I managed to get $4.70/share in time value; if I had sold a higher strike, I would have received less time value.
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