Currently, the implied vol on Beyond Meat $BYND weeklies is over 100%. The company reports earnings on 7/29 after market close. When the stock was at $200 yesterday morning, I put on 3 condors expiring Aug 2 - Long $185P, Short $190P, Short $210C, Long $215C for a credit of $1245. If the price is between $186-$212 on expiry, I will make money. Max potential loss is -$350. ------------------ So my question for those who make their living trading options - in your opinion, is this a good options trade? Would you have structured this trade differently? If so, why? Thanks for any responses from the pros.
You have to ask the questions: What likely hood do you place on staying in that range by Aug 2 as a percentage. Same for being wrong. Then multiply that times the expected gain/loss. It is a dirty calculation that requires you to make assumptions. But if based on your assumptions there is a likelihood of a loss, you should choose a different strategy.
"So my question for those who make their living trading options - in your opinion, is this a good options trade?" I'll let you know Aug 3rd.
Ha. My question was not so much "is this a good trade" in the sense of "am I going to make money" but rather "is this the type of trade that you would put (i.e., am I approaching options trading with the right type of ideas.)
Are there any pros here? I don't know. The problem you have with $BYND is that the IV has been at 100% since pretty much day 0. So you think you're selling vol, but you're not really. That being said, implied vol/historical vol has recently increased so you may make some money yet.
Steve, Yes, You are thinking correctly, and that would be a fine structure for what you are attempting to capture. My criticism would be around the fact you are trying to capture something based on your assumption of volatility and that you assume your wisdom is > the wisdom of the people making that market. (Re-reading this, it sounds like I am implying those market makers are making predictions of final volatility - that would be incorrect but I don't feel like clarifying in detail) I would bet against you.
I'm far from an expert, but wings are way too close imo. I didn't look at the chain but you're neutering your short gamma exposure, especially depending on how steep the skew is. If your thesis was supposed to be that BYND would realize less than implied that doesn't make sense. This is more like a barrier. You'd need a good reason to think 190/210 prices are significant for some reason and unlikely to be breached in order to use this structure. Also +1 to Wheez; have you modeled short term realized vol dynamics in situations like these accurately enough to state with confidence that IV likely is overpriced? Otherwise selling it just because it's a high number and most stocks don't move that much is pure folly.
The IC's B/E is $26 wide, but the underlying has moved ~$40/month since its IPO? That's about $10/week then. And now you've got earnings (which were "underdone" that first time out, if I recall my headlines?).....? So, the expected move right now is well beyond that. This is a gamble. A coin-flip. It should have a ferocious IV. ("It does!!") But to sell this as more than a gamble (and without consideration of the rest of a broad book) -- that would not be "professional".
I like the trade...but only if you get out right before the FOMC announcement on July 31, which could be a binary event for the entire stock market. Looks like realized vol (a lagging indicator) for BYND has been declining since early July, while IV (at 100%) just up-ticked to its highest level this month, so you sold volatility (by buying the condor) at a good level. Also, looks like the stock may be topping out and consolidating into a range, albeit a very wide range. The danger is that the stock in its short history has had a couple of $20+ one-day ranges. So just one of these big price range days could wipe out your whole trade. Maybe a wider condor would have been the safer bet.