November 7, 2018

Playing the Drop in RL

After an earnings miss and over a 12% decline in its price, Ralph Lauren Corp ($RL) traded down to some major support – the 200 Day Moving Average.  (see the blue line in the chart)

After earnings, a stock usually experiences a significant drop in its implied volatility or the amount of premium priced into its options.  But, because of the decline on earnings, the implied volatility didn’t fall as much as we typically see.

Combined with the big support area of the $123 area, we issued a signal to sell a put spread to sell the November 16th (next week expiration) 122/120 put spread for a credit of $0.90.  Four hours later, after a rally of $4, the put spread was trading around $0.40.  So here is the question: WHAT IS THE CORRECT DECISION TO MAKE? Do we let the put spread keep working or as traders, do we look at this and realize that a massive profit was at hand?

Well, I always live by the mantra of “Bulls and Bears Prosper – Pigs Go to the Slaughter.”  With that in mind, we sent a signal to close the position, take our profits, and look to invest them elsewhere.

Please follow me on Twitter:  @cboesib

[thrive_leads id=’272′]

about the author:

Scott Bauer

A respected market commentator seen on Bloomberg, Fox Business, CNBC and other major financial networks, Scott Bauer has 25 plus years of professional equity and index options experience at the Chicago Board Options Exchange (CBOE) and Chicago Mercantile Exchange (CME) and as a Vice-President/trader for Goldman Sachs. Scott graduated with Honors from the University of Illinois Business School and has taught classes both at his alma mater and at the CBOE.

Read Similar Articles

January 4, 2024

Funder Trading Review – Best Prop Trading Firm in 2024?

If you are actively trading in the stock market in 2024, chances are you’ve heard a new buzzword flying around: Prop Trading, short for Proprietary Trading. Whether you’ve tried prop trading or not – or have even heard of it at all – its popularity is quickly growing because it provides everyday traders with a […]

Read Article
September 26, 2022

Coach’s Roundtable: FOMC Fallout & Resilient Market Sectors

Every week, the coaches at Prosper Trading Academy offer their insight on some of the most challenging questions covering recent stock market developments, trading tips, and relevant news stories. This week, Scott Bauer, Charlie Moon, and Mike Shorr give their thoughts on why certain stock market sectors are staying resilient amid the FOMC fallout, and […]

Read Article
volatility
September 20, 2022

What Does Volatility Mean?

Defining Volatility Volatility signifies a security or index price’s degree of variation over time, and is typically associated with price swings in either direction. Volatility often indicates how much risk or uncertainty is tied to the size of changes in an asset’s value. Higher volatility means more risk (the asset’s price can change drastically over […]

Read Article

Read Similar Articles

September 26, 2022

Coach’s Roundtable: FOMC Fallout & Resilient Market Sectors

Every week, the coaches at Prosper Trading Academy offer their insight on some of the most challenging questions covering recent stock market developments, trading tips, and relevant news stories. This week, Scott Bauer, Charlie Moon, and Mike Shorr give their thoughts on why certain stock market sectors are staying resilient amid the FOMC fallout, and […]

Read Article
September 16, 2022

Coach’s Roundtable: Making Up Major Losses

Every week, the coaches at Prosper Trading Academy offer their insight on some of the most challenging questions covering recent stock market developments, trading tips, and relevant news stories. This week, Scott Bauer, Charlie Moon, and Mike Shorr cover this week’s CPI report and other future events that could impact the market, along with ways […]

Read Article
August 26, 2022

Coach’s Roundtable: Stock Market Indexes & Trading Fixes

Every week, the coaches at Prosper Trading Academy offer their insight on some of the most challenging questions covering recent stock market developments, trading tips, and relevant news stories. This week, Scott Bauer, Charlie Moon, and Mike Shorr touch on the best stock market indexes to follow and common issues they notice among struggling traders. […]

Read Article