Punting On STX

I wanted to expand on an anecdote I mentioned in the video from the last post. I stated that I bought a put on STX a couple of days ago, and I sold it for a profit today. STX is something I wouldn’t had dared short a couple of months ago, but in recent weeks I’ve traded it with some success, and last Thursday I went totally unhinged and bought a September $910 put.

I made a few thousand bucks on the trade, so it was an easy 25% gain for holding it a couple of days. I got lucky. So why not hold on for bigger gains? After all, there’s no doubt that the chart above is beautifully bearish.

I’ll come right out and say it: that put will probably be worth a LOT more than I sold it before prior to its expiration on September 18th. Yet intuitively I knew that a substantial amount of its value was tied up in implied volatility, as the Price Cone in SlopeCharts plainly illustrates: this thing is huge.

I’ve added the implied volatility below the chart, just to drive the point home. Over the past few months, IV on this has soared, which has padded the options price heavily.

And although I didn’t look at any of these spiffy tools prior to making my decision, a glance at the IV Rank also makes clear that the IV crush on this following tomorrow evening’s earnings call might lay waste to the value of the option, even if the price of the stock doesn’t move much.

My hunch is that STX absolutely crumbles on Tuesday night. I’ll be quite interested to see what the price of the put option is the next day, however, to dictate how loudly to scream into a pillow about selling it.

Seriously, though, I wasn’t really interested in holding onto a single $19,000 option and keeping my fingers crossed that it would all work out in the end. I just took the profits and called it a day.