MX caught my eye after appearing on the short put list for February options. Implied vols for the front month (Feb 20) options were around 150%. Checking the earnings calendar I see that nothing is on the radar for MX until July!
Nonetheless, IV is still around 100% points higher than historical vol and the stock has been in a tight range for the past week;
Given the recent spike in price from $12 to $15, I was weary of simply shorting puts. Thinking of some downside protection and also allowing for some upside opportunity, I went for a double calendar spread.
After checking my fills post the market close, I see MX has absolutely tanked, down 50%!
The stock closed $7.55 - well below my short $12.50 put option.
Fortunately I am long the $12.50 March put as protection!
Just goes to show how having protection can really save you in situations like these.
So, what happened to MX stock? Well, I read that MX had previously understated earnings during 2013 and the losses now reported are much larger than originally stated. An investigation may soon follow;
Here are the option chains before and after market for Friday the 13th February;
Really not sure what to do now - expiration for the front month strangle is this Friday - I need to decide if I should exit all legs this week or hold onto the back month strangle.
Option assignment! I opened my broker terminal before Wednesday's trading session and see that I have been assigned on my $12.50 Feb put option. This means that I am now long 100 MX shares at a purchase price of $12.50 with the stock trading at $6.88 means an immediate loss of $562 on the stock leg.
However, I have kept the $715 in premium from the short sale of the $12.50 Feb put.
So, now I have a position in the stock and a long Mar $12.50 put (calls are pretty much done so ignoring them at this point) to deal with.
I could ride it out by holding the stock and put - but there is still a month to go on the put leg and not much time-value to benefit from.
I decided the best thing to do was to just close out the trade and move on to the next opportunity. So, I exercised my march put, meaning I sold the stock at $12.50 while losing the entire premium for that option.
The stock leg is therefore a stratch trade; bought and sold at $12.50. The put side actually made $116.20 as the short put price was higher than the long price. But I lost $182.90 total on the call legs.
All in all my net loss on this was $66.70. Would have been nice to have been long some OTM puts in this situation but I'm not fussed about the result in the end - happy to walk away with a small loss given the smashing the stock experienced.
Here are the screens of exercising the put and the resulting trades if you're interested;
I held onto the calls until final expiration...they were almost worthless so I kept them in case of a surprise bull run. They've now expired so the trade is done completely for a net loss of $71.60.
|MX Double Calendar|
|MX Feb20 $12.50 Put||-1||7.146||0||714.6|
|MX Feb20 $17.50 Call||-1||0.036||0||3.6|
|MX Mar20 $12.50 Put||1||5.984||0||-598.4|
|MX Mar20 $17.50 Call||1||1.914||0||-191.4|