A new options trade was executed in a $100,000 account by selling one MSTX May 9 $40 put option, collecting a premium of $225.
Trade Details:
- Underlying Asset: MSTX
- Trade Date: May 2, 2025
- Option Sold: May 9, 2025, $40 Put
- Premium Received: $225
- Account Size: $100,000
Rationale:
MSTX continues to provide attractive setups for short premium strategies due to its consistent volatility and liquidity. This trade builds on prior success with the ticker, aiming to capitalize on a short-term expiration while targeting a technically significant support level.
Key reasons for entry:
- Short-Duration Setup: Just one week until expiration accelerates time decay (theta) in the seller’s favor.
- Premium Efficiency: A $225 credit on a $4,000 notional position delivers strong risk-adjusted return potential.
- Support Zone: The $40 level aligns with recent consolidation, providing a cushion against downside moves.
Trade Outcome Scenarios:
- Stock Price Above $40 at Expiration: The put expires worthless, and the full $225 premium is retained as profit.
- Stock Price Below $40 at Expiration: The position may be assigned, resulting in the purchase of 100 shares at $40 each. After accounting for the $225 premium, the effective purchase price would be $37.75. The strategy is to manage the position through rolling, aiming to continue collecting credit until the option expires worthless.
Risk Management:
- Position Sizing: The $4,000 potential obligation is within acceptable limits for a $100K account.
- Exit/Adjustment Plan: If the price approaches the strike, the position will be reviewed for a potential roll or early exit.
Conclusion:
This trade reflects a tactical, short-term income strategy that leverages time decay and technical levels. Active monitoring and disciplined risk management will guide the outcome as expiration approaches.
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