End of the Ride
BACK IN NOVEMBER, I wrote about using options to bet that shares of Peloton Interactive would decline. This was my first options trade. I purchased the put option when Peloton was trading in the low $50s. The option cost me $200, and it gave me the right to sell 100 shares at $35 per share in March 2022.
Since then, Peloton���s shares have indeed tumbled. It was recently announced that the stock will be booted from the Nasdaq-100 index, the company has continued to struggle with public relations blunders and this morning its shares plunged below $30 (symbol:��PTON). While I���m still bearish on the stock, I decided to sell my put last week for $600, giving me a profit of $400 or 200%.
Why? I never thought I���d see much of a gain on the trade. I understood the risk that I could lose the entire $200 premium if Peloton shares finished above $35. And I would have been okay with that loss because I made the trade, in part, to gain first-hand experience.
While I understood the downside, I was less prepared to make a profit. When Peloton shares traded lower after I bought the option, the value of my position quickly doubled to $400. With the continued selloff in January, my position tripled to $600. I felt greedy not accepting a 200% gain.
Another reason for selling last week: I knew the position would likely lose value as the option���s expiration date approached. At this point, the range of possible outcomes remains relatively large, and that bolsters the option���s value.
The final reason I sold: I don���t like rooting for a stock to tank. It felt as if I was hoping for a gymnast to slip off the balance beam. Still, all in all, it was a good���and lucrative���learning experience. But it���s back to indexing for me.
Since then, Peloton���s shares have indeed tumbled. It was recently announced that the stock will be booted from the Nasdaq-100 index, the company has continued to struggle with public relations blunders and this morning its shares plunged below $30 (symbol:��PTON). While I���m still bearish on the stock, I decided to sell my put last week for $600, giving me a profit of $400 or 200%.
Why? I never thought I���d see much of a gain on the trade. I understood the risk that I could lose the entire $200 premium if Peloton shares finished above $35. And I would have been okay with that loss because I made the trade, in part, to gain first-hand experience.
While I understood the downside, I was less prepared to make a profit. When Peloton shares traded lower after I bought the option, the value of my position quickly doubled to $400. With the continued selloff in January, my position tripled to $600. I felt greedy not accepting a 200% gain.
Another reason for selling last week: I knew the position would likely lose value as the option���s expiration date approached. At this point, the range of possible outcomes remains relatively large, and that bolsters the option���s value.
The final reason I sold: I don���t like rooting for a stock to tank. It felt as if I was hoping for a gymnast to slip off the balance beam. Still, all in all, it was a good���and lucrative���learning experience. But it���s back to indexing for me.
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